Radek Strnad
3 min read
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 is one stock where Wall Street’s excitement appears well-founded and two where analysts may be overlooking some important risks.
Two Stocks to Sell:
Simply Good Foods (SMPL)
Consensus Price Target: $14.38 (25.1% implied return)
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Do We Pass on SMPL?
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Lackluster 5.2% annual revenue growth over the last three years indicates the company is losing ground to competitors
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Estimated sales decline of 8.9% for the next 12 months implies a challenging demand environment
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Efficiency has decreased over the last year as its operating margin fell by 31.9 percentage points
Simply Good Foods’s stock price of $11.50 implies a valuation ratio of 6.8x forward P/E. To fully understand why you should be careful with SMPL, check out our full research report (it’s free).
Warby Parker (WRBY)
Consensus Price Target: $30.46 (29.3% implied return)
Founded in 2010, Warby Parker (NYSE:WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.
Why Does WRBY Fall Short?
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Revenue base of $911.6 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Subpar operating margin of -1% constrains its ability to invest in process improvements or effectively respond to new competitive threats
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Negative returns on capital show management lost money while trying to expand the business
At $23.55 per share, Warby Parker trades at 49.3x forward P/E. Read our free research report to see why you should think twice about including WRBY in your portfolio, it’s free.
One Stock to Watch:
MYR Group (MYRG)
Consensus Price Target: $412 (45% implied return)
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ:MYRG) is a specialty contractor in the electrical construction industry.
