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.
Accurately determining a company’s long-term prospects isn’t easy, especially when sentiment is weak. That’s where StockStory comes in - to help you find attractive investment candidates backed by unbiased research. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Shoe Carnival (SCVL)
Consensus Price Target: $22 (8.8% implied return)
Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ: SCVL) is a retailer that sells footwear from mainstream brands for the entire family.
Why Do We Think SCVL Will Underperform?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Smaller revenue base of $1.15 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 6 percentage points
Shoe Carnival’s stock price of $20.22 implies a valuation ratio of 12.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SCVL.
Mohawk Industries (MHK)
Consensus Price Target: $136.88 (7.8% implied return)
Established in 1878, Mohawk Industries (NYSE: MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Why Are We Out on MHK?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $126.99 per share, Mohawk Industries trades at 13x forward P/E. Read our free research report to see why you should think twice about including MHK in your portfolio.
Soho House (SHCO)
Consensus Price Target: $9 (1.7% implied return)
Boasting fancy locations in hubs such as NYC and Miami, Soho House (NYSE: SHCO) is a global hospitality brand offering exclusive private member clubs, hotels, and restaurants.
Why Are We Hesitant About SHCO?
- Demand for its offerings was relatively low as its number of members has underwhelmed
- Negative free cash flow raises questions about the return timeline for its investments
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Soho House is trading at $8.85 per share, or 14.4x forward EV-to-EBITDA. To fully understand why you should be careful with SHCO, check out our full research report (it’s free for active Edge members).
Stocks We Like More
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