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.
Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. Keeping that in mind, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Matthews (MATW)
Consensus Price Target: $38 (37.1% implied return)
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Do We Pass on MATW?
- Products and services have few die-hard fans as sales have declined by 5% annually over the last five years
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $27.72 per share, Matthews trades at 0.7x trailing 12-month price-to-sales. To fully understand why you should be careful with MATW, check out our full research report (it’s free).
Redwire (RDW)
Consensus Price Target: $14.88 (65.6% implied return)
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Is RDW Risky?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- 14 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Redwire is trading at $8.98 per share, or 3.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RDW.
Avery Dennison (AVY)
Consensus Price Target: $199.60 (26.6% implied return)
Founded as Kum Kleen Products, Avery Dennison (NYSE: AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.
Why Is AVY Not Exciting?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Anticipated sales growth of 3.7% for the next year implies demand will be shaky
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.3% annually
Avery Dennison’s stock price of $157.70 implies a valuation ratio of 15.2x forward P/E. Read our free research report to see why you should think twice about including AVY in your portfolio.
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