Wall Street has issued downbeat forecasts for the stocks in this article. These predictions are rare - financial institutions typically hesitate to say bad things about a company because it can jeopardize their other revenue-generating business lines like M&A advisory.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. That said, here are three stocks where the skepticism is well-placed and some better opportunities to consider.
Choice Hotels (CHH)
Consensus Price Target: $112.53 (-1.1% implied return)
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE: CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Why Do We Avoid CHH?
- Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
- Poor free cash flow margin of 8.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Choice Hotels is trading at $113.81 per share, or 16x forward P/E. Dive into our free research report to see why there are better opportunities than CHH.
Henry Schein (HSIC)
Consensus Price Target: $88.07 (10.2% implied return)
With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ: HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.
Why Do We Think Twice About HSIC?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
- Eroding returns on capital suggest its historical profit centers are aging
At $79.91 per share, Henry Schein trades at 14.9x forward P/E. Read our free research report to see why you should think twice about including HSIC in your portfolio.
Ingram Micro (INGM)
Consensus Price Target: $31.42 (10.3% implied return)
Operating as the crucial link in the global technology supply chain with a presence in 57 countries, Ingram Micro (NYSE: INGM) is a global technology distributor that connects manufacturers with resellers, providing hardware, software, cloud services, and logistics expertise.
Why Do We Steer Clear of INGM?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share have dipped by 8.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term
- Low free cash flow margin of 0.2% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Ingram Micro’s stock price of $28.49 implies a valuation ratio of 8.7x forward P/E. Check out our free in-depth research report to learn more about why INGM doesn’t pass our bar.
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