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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. That said, here is one stock where Wall Street’s excitement appears well-founded and two where analysts may be overlooking some important risks.
Two Stocks to Sell:
Sonos (SONO)
Consensus Price Target: $19.13 (33.6% implied return)
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Think SONO Will Underperform?
- Products and services have few die-hard fans as sales have declined by 1.4% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Low free cash flow margin of 6.2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Sonos’s stock price of $14.32 implies a valuation ratio of 1.1x forward price-to-sales. Read our free research report to see why you should think twice about including SONO in your portfolio.
Kroger (KR)
Consensus Price Target: $75.36 (34.9% implied return)
With a sprawling network of over 2,400 locations offering digital pickup services, Kroger (NYSE: KR) operates supermarkets, pharmacies, and fuel centers across 35 states, offering customers groceries, household items, and private-label products.
Why Are We Out on KR?
- Conservative approach to adding new stores shows management is focused on improving existing location performance
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 23.9%
- Earnings per share fell by 20.9% annually over the last three years while its revenue was flat, showing each sale was less profitable
At $55.87 per share, Kroger trades at 10.5x forward P/E. To fully understand why you should be careful with KR, check out our full research report (it’s free).
One Stock to Buy:
EXL (EXLS)
Consensus Price Target: $41.75 (63% implied return)
Originally founded as an outsourcing company in 1999 before evolving into a technology-focused enterprise, EXL (NASDAQ: EXLS) provides data analytics and AI-powered digital operations solutions that help businesses transform their operations and make better decisions.
Why Will EXLS Beat the Market?
- Market share has increased this cycle as its 17.2% annual revenue growth over the last five years was exceptional
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin expanded by 5.2 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
EXL is trading at $25.61 per share, or 11.4x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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