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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Sally Beauty (SBH)
Consensus Price Target: $14.45 (-13.9% implied return)
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Why Do We Think SBH Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Revenue base of $3.69 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Earnings per share have contracted by 2.7% annually over the last six years, a headwind for returns as stock prices often echo long-term EPS performance
Sally Beauty is trading at $16.78 per share, or 8.7x forward P/E. To fully understand why you should be careful with SBH, check out our full research report (it’s free for active Edge members).
Vulcan Materials (VMC)
Consensus Price Target: $304.52 (0% implied return)
Founded in 1909, Vulcan Materials (NYSE: VMC) is a producer of construction aggregates, primarily crushed stone, sand, and gravel.
Why Are We Wary of VMC?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Sluggish trends in its tons shipped suggest customers aren’t adopting its solutions as quickly as the company hoped
- Gross margin of 25% is below its competitors, leaving less money to invest in areas like marketing and R&D
Vulcan Materials’s stock price of $304.67 implies a valuation ratio of 34.3x forward P/E. Read our free research report to see why you should think twice about including VMC in your portfolio.
Thermo Fisher (TMO)
Consensus Price Target: $546.64 (0.7% implied return)
With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE: TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.
Why Are We Cautious About TMO?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 10.2 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $543.10 per share, Thermo Fisher trades at 23.3x forward P/E. If you’re considering TMO for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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