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. That said, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.

Central Garden & Pet (CENT)

Consensus Price Target: $42.33 (32.3% implied return)

Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.

Why Do We Think CENT Will Underperform?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
3. Underwhelming 9.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $32.01 per share, Central Garden & Pet trades at 11.6x forward P/E. If you’re considering CENT for your portfolio, see our FREE research report to learn more.

Omnicell (OMCL)

Consensus Price Target: $44 (41.5% implied return)

Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.

Why Should You Sell OMCL?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.5% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.1% annually
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 13.1 percentage points

Omnicell is trading at $31.10 per share, or 20.1x forward P/E. Read our free research report to see why you should think twice about including OMCL in your portfolio.

Ready Capital (RC)

Consensus Price Target: $4.38 (40.7% implied return)

Operating as one of only 17 non-bank Small Business Lending Companies with preferred lender status from the SBA, Ready Capital (NYSE: RC) is a multi-strategy real estate finance company that originates, acquires, and services commercial real estate loans, small business loans, and other real estate investments.

Why Do We Steer Clear of RC?

1. Annual net interest income growth of 4.9% over the last five years was below our standards for the banking sector
2. Earnings per share fell by 17.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 6.9% annually over the last five years

Ready Capital’s stock price of $3.11 implies a valuation ratio of 0.3x forward P/B. Check out our free in-depth research report to learn more about why RC doesn’t pass our bar.

Stocks We Like More

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