When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Rapid7 (RPD)
Consensus Price Target: $7.30 (4% implied return)
With its name inspired by the need for quick responses to cyber threats, Rapid7 (NASDAQ: RPD) provides cybersecurity software and services that help organizations detect vulnerabilities, monitor threats, and respond to security incidents.
Why Do We Steer Clear of RPD?
- Customers had second thoughts about committing to its platform over the last year as its billings plateaued
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 1.7 percentage points
Rapid7’s stock price of $7.02 implies a valuation ratio of 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why RPD doesn’t pass our bar.
Moderna (MRNA)
Consensus Price Target: $43.30 (-9.2% implied return)
Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.
Why Do We Pass on MRNA?
- Annual sales declines of 34.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- 129.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $47.69 per share, Moderna trades at 9.8x forward price-to-sales. If you’re considering MRNA for your portfolio, see our FREE research report to learn more.
NOV (NOV)
Consensus Price Target: $21.70 (5.2% implied return)
With roots stretching back to 1862 when it began making equipment for early oil fields, NOV (NYSE: NOV) manufactures drilling rigs, drill bits, pumps, and other equipment used to drill oil and gas wells.
Why Do We Think NOV Will Underperform?
- Sales tumbled by 3.3% annually over the last ten years, showing market trends are working against it during this cycle
- Gross margin of 20.3% is below its competitors, leaving less money to invest in exploration and production
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
NOV is trading at $20.64 per share, or 21x forward P/E. To fully understand why you should be careful with NOV, check out our full research report (it’s free).
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