Wall Street has issued downbeat forecasts for the stocks in this article. These predictions are rare - financial institutions typically hesitate to say bad things about a company because it can jeopardize their other revenue-generating business lines like 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.
Moderna (MRNA)
Consensus Price Target: $45.60 (-10.2% implied return)
Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.
Why Are We Out on MRNA?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 46.7% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 30.2% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 178.4 percentage points
Moderna’s stock price of $50.79 implies a valuation ratio of 9.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MRNA.
Valaris (VAL)
Consensus Price Target: $66.18 (-29% implied return)
Operating the world's largest fleet of offshore drilling rigs across six continents, Valaris (NYSE: VAL) provides offshore drilling rigs and crews to oil and gas companies exploring and producing in deep waters and shallow seas.
Why Do We Pass on VAL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.3% annually over the last ten years
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 21%
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Valaris is trading at $93.17 per share, or 31x forward P/E. To fully understand why you should be careful with VAL, check out our full research report (it’s free).
ProPetro (PUMP)
Consensus Price Target: $14.55 (3.1% implied return)
Operating exclusively in the Permian Basin—one of America's most prolific oil-producing regions—ProPetro (NYSE: PUMP) provides hydraulic fracturing services that pump high-pressure fluid and sand into oil wells to release trapped hydrocarbons.
Why Should You Dump PUMP?
- Sales trends were unexciting over the last five years as its 10% annual growth was below the typical energy upstream and integrated energy company
- Modest revenue base of $1.27 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 27.5% reflects its high production costs and unfavorable asset base
At $14.11 per share, ProPetro trades at 7.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PUMP in your portfolio.
High-Quality Stocks for All Market Conditions
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