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.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Advance Auto Parts (AAP)
Consensus Price Target: $47.05 (-5.3% implied return)
Founded in Virginia in 1932, Advance Auto Parts (NYSE: AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Is AAP Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Inability to adjust its cost structure while its revenue declined over the last year led to a 10.4 percentage point drop in the company’s operating margin
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $49.69 per share, Advance Auto Parts trades at 23.1x forward P/E. If you’re considering AAP for your portfolio, see our FREE research report to learn more.
Dine Brands (DIN)
Consensus Price Target: $24 (-11.4% implied return)
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Do We Pass on DIN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Sales over the last six years were less profitable as its earnings per share fell by 10.1% annually while its revenue was flat
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Dine Brands’s stock price of $27.09 implies a valuation ratio of 5.3x forward P/E. To fully understand why you should be careful with DIN, check out our full research report (it’s free).
Vertex Pharmaceuticals (VRTX)
Consensus Price Target: $499.87 (13% implied return)
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Why Does VRTX Give Us Pause?
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 15.6% annually
- Free cash flow margin dropped by 58.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Vertex Pharmaceuticals is trading at $442.40 per share, or 23.8x forward P/E. Dive into our free research report to see why there are better opportunities than VRTX.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
