Wall Street’s bearish price targets for the stocks in this article signal serious concerns. Such forecasts are uncommon in an industry where maintaining cordial corporate relationships often trumps delivering the hard truth.
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 outlook is warranted and some alternatives with better fundamentals.
PepsiCo (PEP)
Consensus Price Target: $170.81 (6.4% implied return)
With a history that goes back more than a century, PepsiCo (NASDAQ: PEP) is a household name in food and beverages today and best known for its flagship soda.
Why Does PEP Fall Short?
- Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Anticipated sales growth of 4.8% for the next year implies demand will be shaky
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 1.8 percentage points
PepsiCo is trading at $160.59 per share, or 19x forward P/E. Read our free research report to see why you should think twice about including PEP in your portfolio.
Acushnet (GOLF)
Consensus Price Target: $98 (0.7% implied return)
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE: GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Should You Dump GOLF?
- Annual revenue growth of 9.7% over the last five years was below our standards for the consumer discretionary sector
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $97.30 per share, Acushnet trades at 25x forward P/E. To fully understand why you should be careful with GOLF, check out our full research report (it’s free).
IDEX (IEX)
Consensus Price Target: $225.08 (10.6% implied return)
Founded in 1988, IDEX (NYSE: IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.
Why Are We Out on IEX?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 1.7% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
IDEX’s stock price of $203.55 implies a valuation ratio of 25.3x forward P/E. Dive into our free research report to see why there are better opportunities than IEX.
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