Wall Street is overwhelmingly bullish on the stocks in this article, with price targets suggesting significant upside potential. However, it’s worth remembering that analysts rarely issue sell ratings, partly because their firms often seek other business from the same companies they cover.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. Keeping that in mind, here are three stocks where Wall Street may be overlooking some important risks and some alternatives with better fundamentals.
8x8 (EGHT)
Consensus Price Target: $2.50 (27.7% implied return)
Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ: EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single platform.
Why Should You Sell EGHT?
- Billings didn’t grow over the last year, suggesting the company struggled to sell its software and might have to lower prices to stimulate growth
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
8x8 is trading at $1.96 per share, or 0.4x forward price-to-sales. Check out our free in-depth research report to learn more about why EGHT doesn’t pass our bar.
Malibu Boats (MBUU)
Consensus Price Target: $36.07 (34% implied return)
Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.
Why Are We Out on MBUU?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.9% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $26.92 per share, Malibu Boats trades at 21.3x forward P/E. To fully understand why you should be careful with MBUU, check out our full research report (it’s free for active Edge members).
Neogen (NEOG)
Consensus Price Target: $8.17 (34.1% implied return)
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ: NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Should You Dump NEOG?
- Sales tumbled by 1.8% annually over the last two years, showing market trends are working against its favor during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Neogen’s stock price of $6.09 implies a valuation ratio of 18.5x forward P/E. Check out our free in-depth research report to learn more about why NEOG doesn’t pass our bar.
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