Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. That said, here are three stocks where Wall Street may be overlooking some important risks and some alternatives with better fundamentals.
BlackLine (BL)
Consensus Price Target: $41.77 (56% implied return)
Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ: BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.
Why Should You Sell BL?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 8.5% underwhelmed
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
At $26.78 per share, BlackLine trades at 2.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BL.
Advanced Drainage (WMS)
Consensus Price Target: $180 (28.3% implied return)
Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE: WMS) provides clean water management solutions to communities across America.
Why Does WMS Give Us Pause?
- Annual revenue growth of 3% over the last two years was below our standards for the industrials sector
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Advanced Drainage is trading at $140.32 per share, or 22.3x forward P/E. Check out our free in-depth research report to learn more about why WMS doesn’t pass our bar.
Wells Fargo (WFC)
Consensus Price Target: $96.11 (26.4% implied return)
Founded during the California Gold Rush in 1852 to provide banking and express delivery services to miners and merchants, Wells Fargo (NYSE: WFC) is a diversified financial services company that provides banking, lending, investment, and wealth management services to individuals and businesses.
Why Are We Hesitant About WFC?
- The company has faced growth challenges as its 5.1% annual net interest income increases over the last five years fell short of other banking companies
- Net interest margin shrank by 38.7 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 7.1%
Wells Fargo’s stock price of $76.01 implies a valuation ratio of 1.4x forward P/B. If you’re considering WFC for your portfolio, see our FREE research report to learn more.
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