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 where the outlook is warranted and some alternatives with better fundamentals.
Wayfair (W)
Consensus Price Target: $51.38 (-22.6% implied return)
Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Are We Out on W?
- Struggled with new customer acquisition as its active customers averaged 2.1% declines
- Gross margin of 30.5% is below its competitors, leaving less money to invest in areas like marketing and R&D
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Wayfair’s stock price of $66.35 implies a valuation ratio of 16.9x forward EV/EBITDA. Check out our free in-depth research report to learn more about why W doesn’t pass our bar.
Monarch (MCRI)
Consensus Price Target: $99.40 (-3.4% implied return)
Established in 1993, Monarch (NASDAQ: MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Does MCRI Fall Short?
- Sales trends were unexciting over the last two years as its 4% annual growth was below the typical consumer discretionary company
- Estimated sales growth of 4.4% for the next 12 months is soft and implies weaker demand
Monarch is trading at $102.89 per share, or 20.6x forward P/E. To fully understand why you should be careful with MCRI, check out our full research report (it’s free).
Fastenal (FAST)
Consensus Price Target: $43.25 (-7.3% implied return)
Founded in 1967, Fastenal (NASDAQ: FAST) provides industrial and construction supplies, including fasteners, tools, safety products, and many other product categories to businesses globally.
Why Is FAST Not Exciting?
- Muted 3.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.8% annually
- 4.8 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
At $46.64 per share, Fastenal trades at 43.3x forward P/E. If you’re considering FAST for your portfolio, see our FREE research report to learn more.
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