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.
Teradata (TDC)
Consensus Price Target: $35.73 (40.2% implied return)
Pioneering data warehousing technology in the 1980s before "big data" was a common term, Teradata (NYSE: TDC) provides cloud-based data analytics and AI platforms that help large enterprises integrate, analyze, and leverage their data across multiple environments.
Why Do We Avoid TDC?
- Offerings struggled to generate interest as its billings were flat over the last year
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Sky-high servicing costs result in an inferior gross margin of 59.8% that must be offset through increased usage
At $25.48 per share, Teradata trades at 1.5x forward price-to-sales. To fully understand why you should be careful with TDC, check out our full research report (it’s free).
Align Technology (ALGN)
Consensus Price Target: $201.69 (18.2% implied return)
Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ: ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.
Why Does ALGN Give Us Pause?
- Annual revenue growth of 2.2% over the last two years was below our standards for the healthcare sector
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Align Technology’s stock price of $170.60 implies a valuation ratio of 15.2x forward P/E. Check out our free in-depth research report to learn more about why ALGN doesn’t pass our bar.
Elanco (ELAN)
Consensus Price Target: $28.77 (24.7% implied return)
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE: ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Are We Cautious About ELAN?
- Muted 3.3% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 3.3 percentage points
- Negative returns on capital show management lost money while trying to expand the business
Elanco is trading at $23.08 per share, or 22.5x forward P/E. If you’re considering ELAN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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