Wall Street is overwhelmingly bullish on the stocks in this article, with price targets suggesting significant upside potential. However, it’s worth remembering that analysts rarely issue sell ratings, partly because their firms often seek other business from the same companies they cover.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. That said, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Lowe's (LOW)
Consensus Price Target: $263.73 (21.8% implied return)
Founded in North Carolina as Lowe's North Wilkesboro Hardware, the company is a home improvement retailer that sells everything from paint to tools to building materials.
Why Does LOW Worry Us?
- Products have few die-hard fans as sales have declined by 2.6% annually over the last three years
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 33.3% that must be offset through higher volumes
At $216.51 per share, Lowe's trades at 16.3x forward P/E. Check out our free in-depth research report to learn more about why LOW doesn’t pass our bar.
Wyndham (WH)
Consensus Price Target: $100.18 (24.4% implied return)
Established in 1981, Wyndham (NYSE: WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.
Why Do We Think WH Will Underperform?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Wyndham’s stock price of $80.52 implies a valuation ratio of 16.5x forward P/E. If you’re considering WH for your portfolio, see our FREE research report to learn more.
Ocular Therapeutix (OCUL)
Consensus Price Target: $26 (211% implied return)
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Is OCUL Risky?
- Annual sales declines of 6.7% for the past two years show its products and services struggled to connect with the market during this cycle
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 422.2 percentage points
- 325.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Ocular Therapeutix is trading at $8.35 per share, or 34.7x forward price-to-sales. To fully understand why you should be careful with OCUL, check out our full research report (it’s free).
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