Wall Street has issued downbeat forecasts for the stocks in this article. These predictions are rare - financial institutions typically hesitate to say bad things about a company because it can jeopardize their other revenue-generating business lines like M&A advisory.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Crocs (CROX)
Consensus Price Target: $119.75 (-3.3% implied return)
Founded in 2002, Crocs (NASDAQ: CROX) sells casual footwear and is known for its iconic clog shoe.
Why Do We Pass on CROX?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Poor expense management has led to an operating margin of 14.1% that is below the industry average
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Crocs’s stock price of $123.84 implies a valuation ratio of 8.6x forward P/E. If you’re considering CROX for your portfolio, see our FREE research report to learn more.
Employers Holdings (EIG)
Consensus Price Target: $46.50 (-9.2% implied return)
With roots in Nevada and a strong concentration in California where 45% of its premiums are generated, Employers Holdings (NYSE: EIG) is a specialty provider of workers' compensation insurance focused on small and select businesses engaged in low-to-medium hazard industries across the United States.
Why Should You Dump EIG?
- 1.7% annualized net premiums earned growth over the last two years lagged behind its insurance peers
- Costs have risen faster than its revenue over the last five years, causing its pre-tax profit margin to decline by 28.5 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 29.6% annually
At $51.21 per share, Employers Holdings trades at 1x forward P/B. To fully understand why you should be careful with EIG, check out our full research report (it’s free).
Garrett Motion (GTX)
Consensus Price Target: $35.67 (6.3% implied return)
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Why Does GTX Worry Us?
- Sales tumbled by 1.8% annually over the last two years, showing market trends are working against it during this cycle
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.5%
- Gross margin of 19.8% reflects its high production costs
Garrett Motion is trading at $33.54 per share, or 18.1x forward P/E. Dive into our free research report to see why there are better opportunities than GTX.
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