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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. Keeping that in mind, here is one stock where Wall Street’s excitement appears well-founded and two where consensus estimates seem disconnected from reality.
Two Stocks to Sell:
Freshpet (FRPT)
Consensus Price Target: $85.13 (23.8% implied return)
Standing out from typical processed pet foods, Freshpet (NASDAQ: FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats.
Why Is FRPT Not Exciting?
- Modest revenue base of $1.10 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Low free cash flow margin of -1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Underwhelming 0.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
Freshpet’s stock price of $68.74 implies a valuation ratio of 50.9x forward P/E. Check out our free in-depth research report to learn more about why FRPT doesn’t pass our bar.
La-Z-Boy (LZB)
Consensus Price Target: $44.50 (30% implied return)
The prized possession of every mancave, La-Z-Boy (NYSE: LZB) is a furniture company specializing in recliners, sofas, and seats.
Why Should You Dump LZB?
- Muted 6.1% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Projected 4.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
La-Z-Boy is trading at $34.22 per share, or 12.4x forward P/E. If you’re considering LZB for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Ares (ARES)
Consensus Price Target: $147.71 (23.4% implied return)
With roots in the leveraged finance group of Apollo Management, Ares Management (NYSE: ARES) is an alternative investment firm that manages private equity, credit, real estate, and infrastructure assets for institutional and high-net-worth clients.
Why Is ARES a Good Business?
- Annual revenue growth of 21.4% over the last five years was superb and indicates its market share increased during this cycle
- Earnings growth has easily exceeded the peer group average over the last five years as its EPS has compounded at 20.7% annually
At $119.72 per share, Ares trades at 18.2x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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