Wall Street is overwhelmingly bullish on the stocks in this article, with price targets suggesting significant upside potential. However, it’s worth remembering that analysts rarely issue sell ratings, partly because their firms often seek other business from the same companies they cover.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. That said, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Bath and Body Works (BBWI)
Consensus Price Target: $26.43 (52.6% implied return)
Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Are We Hesitant About BBWI?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Sales are projected to tank by 2.9% over the next 12 months as its demand continues evaporating
- Earnings per share have dipped by 2.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Bath and Body Works is trading at $17.32 per share, or 6.4x forward P/E. Check out our free in-depth research report to learn more about why BBWI doesn’t pass our bar.
Darling Ingredients (DAR)
Consensus Price Target: $76.42 (30.1% implied return)
Turning what others consider waste into valuable resources, Darling Ingredients (NYSE: DAR) collects and transforms animal by-products, used cooking oil, and other bio-nutrients into valuable ingredients for food, feed, fuel, and industrial applications.
Why Are We Cautious About DAR?
- Products aren't resonating with the market as its revenue declined by 3.2% annually over the last three years
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 23.8%
- Earnings per share have contracted by 25.6% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
At $58.76 per share, Darling Ingredients trades at 11.5x forward P/E. Read our free research report to see why you should think twice about including DAR in your portfolio.
NESR (NESR)
Consensus Price Target: $31.86 (20.3% implied return)
Operating across 16 countries from Algeria to Indonesia, NESR (NASDAQ: NESR) provides oilfield services like hydraulic fracturing, cementing, and drilling to oil and gas companies.
Why Does NESR Fall Short?
- Modest revenue base of $1.43 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 12.7% is below its competitors, leaving less money to invest in exploration and production
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 48.4 percentage points
NESR’s stock price of $26.49 implies a valuation ratio of 14.3x forward P/E. If you’re considering NESR for your portfolio, see our FREE research report to learn more.
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