When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.
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. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.
El Pollo Loco (LOCO)
Consensus Price Target: $17.88 (5.6% implied return)
With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ: LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.
Why Should You Sell LOCO?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Revenue base of $497.1 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Anticipated sales growth of 2% for the next year implies demand will be shaky
El Pollo Loco’s stock price of $16.93 implies a valuation ratio of 17.5x forward P/E. Dive into our free research report to see why there are better opportunities than LOCO.
BellRing Brands (BRBR)
Consensus Price Target: $13.69 (3.3% implied return)
Spun out of Post Holdings in 2019, Bellring Brands (NYSE: BRBR) offers protein shakes, nutrition bars, and other products under the PowerBar, Premier Protein, and Dymatize brands.
Why Does BRBR Worry Us?
- Subscale operations are evident in its revenue base of $2.33 billion, meaning it has fewer distribution channels than its larger rivals
- Estimated sales growth of 1.4% for the next 12 months implies demand will slow from its three-year trend
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 7.3 percentage points
BellRing Brands is trading at $13.25 per share, or 10.1x forward P/E. Read our free research report to see why you should think twice about including BRBR in your portfolio.
XPO (XPO)
Consensus Price Target: $224.59 (6.2% implied return)
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.
Why Does XPO Fall Short?
- 2.8% annual revenue growth over the last two years was slower than its industrials peers
- High input costs result in an inferior gross margin of 19.8% that must be offset through higher volumes
- Low free cash flow margin of 1.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $211.50 per share, XPO trades at 40.4x forward P/E. To fully understand why you should be careful with XPO, check out our full research report (it’s free).
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