When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.
Accurately determining a company’s long-term prospects isn’t easy, especially when sentiment is weak. That’s where StockStory comes in - to help you find attractive investment candidates backed by unbiased research. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Zumiez (ZUMZ)
Consensus Price Target: $24 (-1.8% implied return)
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ: ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Why Do We Steer Clear of ZUMZ?
- Store closures are a headwind for growth and suggest it’s rightsizing operations to optimize sales at existing locations
- Smaller revenue base of $929.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
Zumiez is trading at $24.45 per share, or 25.9x forward P/E. Check out our free in-depth research report to learn more about why ZUMZ doesn’t pass our bar.
Macy's (M)
Consensus Price Target: $19.40 (0.5% implied return)
With a storied history that began with its 1858 founding, Macy’s (NYSE: M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Why Do We Think M Will Underperform?
- Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have dipped by 20.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Macy’s stock price of $19.30 implies a valuation ratio of 9.1x forward P/E. If you’re considering M for your portfolio, see our FREE research report to learn more.
Avis Budget Group (CAR)
Consensus Price Target: $106.43 (-73.3% implied return)
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.
Why Is CAR Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last two years
- Eroding returns on capital suggest its historical profit centers are aging
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $398.07 per share, Avis Budget Group trades at 110.5x forward P/E. To fully understand why you should be careful with CAR, check out our full research report (it’s free).
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