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.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. Keeping that in mind, here is one stock poised to prove Wall Street wrong and two where the skepticism is well-placed.
Two Stocks to Sell:
Akamai Technologies (AKAM)
Consensus Price Target: $109.46 (-4.1% implied return)
With a massive distributed network spanning 4,100+ points of presence in nearly 130 countries, Akamai Technologies (NASDAQ: AKAM) provides a global distributed cloud platform that helps businesses deliver, secure, and optimize their digital experiences online.
Why Is AKAM Risky?
- Products, pricing, or go-to-market strategy may need some adjustments as its 4.6% average billings growth over the last year was weak
- Gross margin of 58.9% reflects its high servicing costs
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
At $114.10 per share, Akamai Technologies trades at 3.8x forward price-to-sales. Read our free research report to see why you should think twice about including AKAM in your portfolio.
Illinois Tool Works (ITW)
Consensus Price Target: $280.88 (8.4% implied return)
Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE: ITW) manufactures engineered components and specialized equipment for numerous industries.
Why Does ITW Fall Short?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.2%
- Earnings per share lagged its peers over the last two years as they only grew by 3.8% annually
Illinois Tool Works’s stock price of $259.09 implies a valuation ratio of 23.3x forward P/E. Check out our free in-depth research report to learn more about why ITW doesn’t pass our bar.
One Stock to Watch:
The Ensign Group (ENSG)
Consensus Price Target: $220.40 (9.9% implied return)
Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ: ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.
Why Is ENSG Interesting?
- Expected revenue growth of 18.3% for the next year suggests its market share will rise
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 13.8% annually
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
The Ensign Group is trading at $200.59 per share, or 26.9x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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