Wall Street is overwhelmingly bullish on the stocks in this article, with price targets suggesting significant upside potential. However, it’s worth remembering that analysts rarely issue sell ratings, partly because their firms often seek other business from the same companies they cover.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. Keeping that in mind, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Insteel (IIIN)
Consensus Price Target: $39 (27.4% implied return)
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Are We Hesitant About IIIN?
- Sales stagnated over the last two years and signal the need for new growth strategies
- 5.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital suggest its earlier profit pools are drying up
Insteel is trading at $30.62 per share, or 10.4x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.
Redwire (RDW)
Consensus Price Target: $17.72 (114% implied return)
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Are We Out on RDW?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- 27.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Redwire’s stock price of $8.29 implies a valuation ratio of 15.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RDW in your portfolio.
Acadia Healthcare (ACHC)
Consensus Price Target: $29.29 (27.7% implied return)
With a network of over 250 facilities serving patients in 38 states and Puerto Rico, Acadia Healthcare (NASDAQ: ACHC) operates facilities providing mental health and substance use disorder treatment services across the United States.
Why Does ACHC Worry Us?
- Weak admissions over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Free cash flow margin dropped by 24.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $22.93 per share, Acadia Healthcare trades at 9x forward P/E. Dive into our free research report to see why there are better opportunities than ACHC.
High-Quality Stocks for All Market Conditions
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