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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. That said, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.
Nextdoor (KIND)
Consensus Price Target: $2.38 (25.9% implied return)
Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.
Why Are We Wary of KIND?
- Modest 6.5% annual growth in weekly active users over the last two years indicates potential challenges in customer acquisition and retention
- Persistent EBITDA margin losses suggest the business manages its expenses poorly
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Nextdoor’s stock price of $1.89 implies a valuation ratio of 3.2x forward price-to-gross profit. Check out our free in-depth research report to learn more about why KIND doesn’t pass our bar.
Leslie's (LESL)
Consensus Price Target: $11.57 (170% implied return)
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ: LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Should You Sell LESL?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Free cash flow margin shrank by 8.9 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $4.28 per share, Leslie's trades at 11.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than LESL.
Red Robin (RRGB)
Consensus Price Target: $11 (74.1% implied return)
Known for its bottomless steak fries, Red Robin (NASDAQ: RRGB) is a chain of casual restaurants specializing in burgers and general American fare.
Why Are We Out on RRGB?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have contracted by 19.4% annually over the last six years, a headwind for returns as stock prices often echo long-term EPS performance
- High net-debt-to-EBITDA ratio of 10× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Red Robin is trading at $6.32 per share, or 2x forward EV-to-EBITDA. If you’re considering RRGB for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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