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Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. That said, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.
Elastic (ESTC)
Consensus Price Target: $126.58 (64.7% implied return)
Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE:ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.
Why Does ESTC Give Us Pause?
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Poor expense management has led to operating losses
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Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.3 percentage points
Elastic is trading at $81.34 per share, or 5.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ESTC.
Sprout Social (SPT)
Consensus Price Target: $37.31 (57.2% implied return)
Founded by Justyn Howard and Aaron Rankin in 2010, Sprout Social (NASDAQ:SPT) provides a software as a service platform that companies can use to schedule and respond to posts on major social media networks like Twitter, Facebook, Instagram, Youtube and LinkedIn.
Why Are We Hesitant About SPT?
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Operating losses show it sacrificed profitability while scaling the business
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Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $20.40 per share, Sprout Social trades at 2.5x forward price-to-sales. Check out our free in-depth research report to learn more about why SPT doesn’t pass our bar.
Baxter (BAX)
Consensus Price Target: $39.55 (40.4% implied return)
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE:BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Is BAX Risky?
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Sales tumbled by 14.4% annually over the last two years, showing market trends are working against its favor during this cycle
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Weak constant currency growth over the past two years indicates challenges in maintaining its market share
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Sales were less profitable over the last five years as its earnings per share fell by 10.7% annually, worse than its revenue declines