Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.

Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. Keeping that in mind, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.

Elastic (ESTC)

Consensus Price Target: $110.48 (48.3% implied return)

Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE: ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.

Why Does ESTC Fall Short?

1. 19.8% annual revenue growth over the last three years was slower than its software peers
2. Suboptimal cost structure is highlighted by its history of operating margin losses
3. Free cash flow margin is forecasted to shrink by 1.7 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

At $74.47 per share, Elastic trades at 4.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ESTC.

Yext (YEXT)

Consensus Price Target: $9.44 (20.3% implied return)

Founded in 2006 by Howard Lerman, Yext (NYSE: YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.

Why Are We Wary of YEXT?

1. Underwhelming ARR growth of 8.8% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.7%
3. Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions

Yext’s stock price of $7.85 implies a valuation ratio of 2.3x forward price-to-sales. Check out our free in-depth research report to learn more about why YEXT doesn’t pass our bar.

Portillo's (PTLO)

Consensus Price Target: $12.20 (64.1% implied return)

Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ: PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.

Why Are We Hesitant About PTLO?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Low free cash flow margin of -0.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Portillo's is trading at $7.44 per share, or 19.4x forward P/E. To fully understand why you should be careful with PTLO, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

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