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. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Tilly's (TLYS)
Consensus Price Target: $1.30 (-40.4% implied return)
With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.
Why Do We Pass on TLYS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Performance over the past six years shows each sale was less profitable as its earnings per share dropped by 25.5% annually, worse than its revenue
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Tilly’s stock price of $2.18 implies a valuation ratio of 0.1x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including TLYS in your portfolio.
Huntington Ingalls (HII)
Consensus Price Target: $285.80 (6.4% implied return)
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Do We Avoid HII?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 4% for the past two years was weak
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
At $268.72 per share, Huntington Ingalls trades at 17.7x forward P/E. Check out our free in-depth research report to learn more about why HII doesn’t pass our bar.
Banc of California (BANC)
Consensus Price Target: $17.77 (6% implied return)
Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE: BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.
Why Are We Hesitant About BANC?
- Annual net interest income declines of 1.3% for the past five years show its loan book struggled during this cycle
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 3.9% annually over the last five years
- Push for growth has led to negative returns on capital, signaling value destruction
Banc of California is trading at $16.76 per share, or 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than BANC.
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