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.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Dine Brands (DIN)
Consensus Price Target: $30.33 (4.4% implied return)
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Do We Pass on DIN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 4 percentage points
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Dine Brands’s stock price of $29.07 implies a valuation ratio of 6x forward P/E. To fully understand why you should be careful with DIN, check out our full research report (it’s free).
Columbia Sportswear (COLM)
Consensus Price Target: $70.67 (8.9% implied return)
Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ: COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.
Why Are We Out on COLM?
- Lackluster 5.8% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $64.89 per share, Columbia Sportswear trades at 16.5x forward P/E. Check out our free in-depth research report to learn more about why COLM doesn’t pass our bar.
Washington Trust Bancorp (WASH)
Consensus Price Target: $32.75 (0.9% implied return)
Founded in 1800 and operating as Rhode Island's oldest community bank, Washington Trust Bancorp (NASDAQ: WASH) is a regional bank holding company offering commercial banking, mortgage lending, personal banking, and wealth management services.
Why Do We Steer Clear of WASH?
- Muted 4.3% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Inferior net interest margin of 2.3% means it must compensate for lower profitability through increased loan originations
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 9.6% annually
Washington Trust Bancorp is trading at $32.46 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than WASH.
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