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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. That said, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
IPG Photonics (IPGP)
Consensus Price Target: $80.20 (1.7% implied return)
Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.
Why Are We Out on IPGP?
- Sales tumbled by 4.3% annually over the last five years, showing market trends are working against its favor during this cycle
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 46.1 percentage point drop in the company’s operating margin
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
IPG Photonics is trading at $78.87 per share, or 64.9x forward P/E. To fully understand why you should be careful with IPGP, check out our full research report (it’s free).
Graco (GGG)
Consensus Price Target: $92.44 (9.4% implied return)
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Are We Wary of GGG?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $84.49 per share, Graco trades at 27.5x forward P/E. Check out our free in-depth research report to learn more about why GGG doesn’t pass our bar.
MGIC Investment (MTG)
Consensus Price Target: $27.33 (-3.9% implied return)
Founded in 1957 when the modern mortgage insurance industry was in its infancy, MGIC Investment (NYSE: MTG) provides private mortgage insurance that protects lenders when homebuyers default on their loans, enabling borrowers to purchase homes with smaller down payments.
Why Is MTG Not Exciting?
- Net premiums earned contracted by 1.3% annually over the last five years, showing unfavorable market dynamics this cycle
- Day-to-day expenses have swelled relative to revenue over the last two years as its combined ratio increased by 10.7 percentage points
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.1% annually
MGIC Investment’s stock price of $28.44 implies a valuation ratio of 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than MTG.
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