In This Article:
The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. Keeping that in mind, here are three stocks where Wall Street may be overlooking some important risks and some alternatives with better fundamentals.
Peloton (PTON)
Consensus Price Target: $8.94 (24.6% implied return)
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Do We Think PTON Will Underperform?
-
Performance surrounding its connected fitness subscribers has lagged its peers
-
Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
-
Poor expense management has led to operating losses
At $7.18 per share, Peloton trades at 8.5x forward EV-to-EBITDA. To fully understand why you should be careful with PTON, check out our full research report (it’s free).
Cable One (CABO)
Consensus Price Target: $274 (84.8% implied return)
Founded in 1986, Cable One (NYSE:CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.
Why Should You Sell CABO?
-
Performance surrounding its residential data subscribers has lagged its peers
-
Forecasted revenue decline of 2.5% for the upcoming 12 months implies demand will fall even further
-
Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.5 percentage points
Cable One is trading at $148.30 per share, or 1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CABO doesn’t pass our bar.
Smith & Wesson (SWBI)
Consensus Price Target: $13.83 (45.3% implied return)
With a history dating back to 1852, Smith & Wesson (NASDAQ:SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Do We Avoid SWBI?
-
Sales stagnated over the last five years and signal the need for new growth strategies
-
Cash burn makes us question whether it can achieve sustainable long-term growth
-
Diminishing returns on capital suggest its earlier profit pools are drying up
Smith & Wesson’s stock price of $9.52 implies a valuation ratio of 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than SWBI.