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.
Dollar Tree (DLTR)
Consensus Price Target: $108.26 (2.2% implied return)
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ: DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Does DLTR Give Us Pause?
- Sales tumbled by 1.1% annually over the last six years, showing consumer trends are working against its favor
- Projected sales decline of 8.9% over the next 12 months indicates demand will continue deteriorating
- ROIC of 9.7% reflects management’s challenges in identifying attractive investment opportunities
Dollar Tree is trading at $105.88 per share, or 17.8x forward P/E. If you’re considering DLTR for your portfolio, see our FREE research report to learn more.
Fluence Energy (FLNC)
Consensus Price Target: $10.53 (-53% implied return)
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Do We Think Twice About FLNC?
- High input costs result in an inferior gross margin of 7.2% that must be offset through higher volumes
- 6.4 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
Fluence Energy’s stock price of $22.38 implies a valuation ratio of 78.5x forward EV-to-EBITDA. To fully understand why you should be careful with FLNC, check out our full research report (it’s free for active Edge members).
RenaissanceRe (RNR)
Consensus Price Target: $285.07 (6.5% implied return)
Born in Bermuda after the devastating Hurricane Andrew created a crisis in the catastrophe insurance market, RenaissanceRe (NYSE: RNR) provides property, casualty, and specialty reinsurance and insurance solutions to customers worldwide, primarily through intermediaries.
Why Are We Cautious About RNR?
- Sales are projected to tank by 3.7% over the next 12 months as demand evaporates
- Day-to-day expenses have swelled relative to revenue over the last two years as its combined ratio increased by 11.8 percentage points
- Annual earnings per share growth of 2.8% underperformed its revenue over the last two years, showing its incremental sales were less profitable
At $267.60 per share, RenaissanceRe trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including RNR in your portfolio.
High-Quality Stocks for All Market Conditions
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