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. That said, here are three stocks where the skepticism is well-placed and some better opportunities to consider.
Central Garden & Pet (CENT)
Consensus Price Target: $48 (7.6% implied return)
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Does CENT Worry Us?
- Annual sales declines of 1% for the past three years show its products struggled to connect with the market
- Sales are projected to tank by 8.2% over the next 12 months as its demand continues evaporating
- ROIC of 7.8% reflects management’s challenges in identifying attractive investment opportunities
At $44.60 per share, Central Garden & Pet trades at 14.9x forward P/E. Read our free research report to see why you should think twice about including CENT in your portfolio.
Marriott Vacations (VAC)
Consensus Price Target: $87.30 (-15.3% implied return)
Spun off from Marriott International in 1984, Marriott Vacations (NYSE: VAC) is a vacation company providing leisure experiences for travelers around the world.
Why Do We Pass on VAC?
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- 11× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Marriott Vacations’s stock price of $103.04 implies a valuation ratio of 12.9x forward P/E. Check out our free in-depth research report to learn more about why VAC doesn’t pass our bar.
Connection (CNXN)
Consensus Price Target: $76 (5% implied return)
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Does CNXN Fall Short?
- Sales trends were unexciting over the last two years as its 2.5% annual growth was below the typical business services company
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.9% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Connection is trading at $72.40 per share, or 18.5x forward P/E. If you’re considering CNXN for your portfolio, see our FREE research report to learn more.
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