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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here is one stock where Wall Street’s pessimism is creating a buying opportunity and two where the skepticism is well-placed.
Two Stocks to Sell:
Opendoor (OPEN)
Consensus Price Target: $4.33 (-0.5% implied return)
Founded by real estate guru Eric Wu, Opendoor (NASDAQ: OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Why Do We Avoid OPEN?
- Sluggish trends in its homes sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 27.5 percentage points over the next year
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Opendoor is trading at $4.36 per share, or 0.9x forward price-to-sales. If you’re considering OPEN for your portfolio, see our FREE research report to learn more.
CSX (CSX)
Consensus Price Target: $41.69 (-1.7% implied return)
Established as part of the Chessie System and Seaboard Coast Line Industries merger, CSX (NASDAQ: CSX) is a transportation company specializing in freight rail services.
Why Do We Think CSX Will Underperform?
- Sales tumbled by 1.9% annually over the last two years, showing market trends are working against its favor during this cycle
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 6.5% annually, worse than its revenue
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 18 percentage points
CSX’s stock price of $42.42 implies a valuation ratio of 23x forward P/E. Check out our free in-depth research report to learn more about why CSX doesn’t pass our bar.
One Stock to Buy:
Monolithic Power Systems (MPWR)
Consensus Price Target: $1,343 (-1.1% implied return)
Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ: MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.
Why Is MPWR a Top Pick?
- Market share has increased this cycle as its 27% annual revenue growth over the last five years was exceptional
- Free cash flow margin expanded by 7.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $1,357 per share, Monolithic Power Systems trades at 62.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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