The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.
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 enthusiasm may be misplaced and some other investments worth exploring instead.
ThredUp (TDUP)
Consensus Price Target: $8.04 (84.2% implied return)
Founded to revolutionize thrifting, ThredUp (NASDAQ: TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Do We Pass on TDUP?
- Number of orders has disappointed over the past two years, indicating weak demand for its offerings
- Historical operating margin losses point to an inefficient cost structure
- Low free cash flow margin of -0.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
ThredUp is trading at $4.37 per share, or 25.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than TDUP.
Gap (GAP)
Consensus Price Target: $30.04 (29.6% implied return)
Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE: GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.
Why Does GAP Fall Short?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Lack of new stores puts a ceiling on its growth and reflects a focus on optimizing sales at existing locations
- ROIC of 7.6% reflects management’s challenges in identifying attractive investment opportunities
Gap’s stock price of $23.18 implies a valuation ratio of 10.1x forward P/E. If you’re considering GAP for your portfolio, see our FREE research report to learn more.
Option Care Health (OPCH)
Consensus Price Target: $29.18 (40.6% implied return)
With a nationwide network of 177 locations serving 43 states and a team of over 4,500 clinicians, Option Care Health (NASDAQ: OPCH) is the largest independent provider of home and alternate site infusion services, delivering medications and clinical support to patients across the United States.
Why Is OPCH Not Exciting?
- Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin shrank by 1.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $20.75 per share, Option Care Health trades at 10.9x forward P/E. Read our free research report to see why you should think twice about including OPCH in your portfolio.
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