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. Keeping that in mind, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
XPO (XPO)
Consensus Price Target: $138.80 (3% implied return)
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.
Why Do We Steer Clear of XPO?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.5% annually over the last five years
- Earnings per share were flat over the last two years and fell short of the peer group average
- Free cash flow margin dropped by 7.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
XPO’s stock price of $134.70 implies a valuation ratio of 33.1x forward P/E. To fully understand why you should be careful with XPO, check out our full research report (it’s free).
Credit Acceptance (CACC)
Consensus Price Target: $467.50 (-8.8% implied return)
Founded in 1972 by Donald Foss to serve customers overlooked by traditional lenders, Credit Acceptance (NASDAQ: CACC) provides auto financing solutions that enable car dealers to sell vehicles to consumers with limited or impaired credit histories.
Why Do We Pass on CACC?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Sales over the last two years were less profitable as its earnings per share fell by 10% annually while its revenue was flat
- Elevated debt-to-equity ratio of 3.9× suggests the firm is overleveraged and may struggle to secure additional financing
At $512.33 per share, Credit Acceptance trades at 11.9x forward P/E. If you’re considering CACC for your portfolio, see our FREE research report to learn more.
Comerica (CMA)
Consensus Price Target: $66.65 (-2.9% implied return)
Founded in 1849 during the California Gold Rush era, Comerica (NYSE: CMA) is a financial services company that provides commercial banking, retail banking, and wealth management services to businesses and individuals.
Why Do We Think Twice About CMA?
- Net interest income trends were unexciting over the last five years as its 3.2% annual growth was below the typical banking firm
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle
Comerica is trading at $68.67 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including CMA in your portfolio.
Stocks We Like More
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