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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.
Workday (WDAY)
Consensus price target: $209.25 (5.3% implied return)
Born from the vision of PeopleSoft founders after Oracle's hostile takeover of their previous company, Workday (NASDAQ:WDAY) provides cloud-based software for financial management, human resources, planning, and analytics to help organizations manage their business operations.
Why Does WDAY Worry Us?
- The company has faced growth challenges as its 13.6% annual revenue increases over the last two years fell short of other software companies
- Estimated sales growth of 10.1% for the next 12 months implies demand will slow from its two-year trend
- Operating margin expanded by 4.8 percentage points over the last year as it scaled and became more efficient
At $198.76 per share, Workday trades at 4.4x forward price-to-sales. Check out our free in-depth research report to learn more about why WDAY doesn’t pass our bar.
Vestis (VSTS)
Consensus price target: $13 (-11.4% implied return)
Operating a network of more than 350 facilities with 3,300 delivery routes serving customers weekly, Vestis (NYSE:VSTS) provides uniform rentals, workplace supplies, and facility services to over 300,000 business locations across the United States and Canada.
Why Do We Steer Clear of VSTS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.2% annually over the last two years
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Earnings per share have dipped by 50.8% annually over the past four years, which is concerning because stock prices follow EPS over the long term
Vestis’s stock price of $14.68 implies a valuation ratio of 20.5x forward P/E. Dive into our free research report to see why there are better opportunities than VSTS.
The Hanover Insurance Group (THG)
Consensus price target: $239 (-3.9% implied return)
Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE:THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.
Why Does THG Give Us Pause?
- Net premiums earned expanded by 4.2% annually over the last two years, falling below our expectations for the insurance sector
- Projected sales growth of 4.9% for the next 12 months suggests sluggish demand
- 2.7% annual book value per share growth over the last five years was slower than its insurance peers
The Hanover Insurance Group is trading at $248.79 per share, or 2.3x forward P/B. Read our free research report to see why you should think twice about including THG in your portfolio.
High-quality stocks for all market conditions
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