3 of Wall Street's Favorite Stocks We Find Risky

The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.

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.

The RealReal (REAL)

Consensus Price Target: $10 (15.2% implied return)

Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.

Why Does REAL Give Us Pause?

1. 4.1% annual revenue growth over the last three years was slower than its consumer internet peers
2. Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 11.7% annually
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

The RealReal is trading at $8.68 per share, or 28.7x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than REAL.

LKQ (LKQ)

Consensus Price Target: $43.42 (34.3% implied return)

A global distributor of vehicle parts and accessories, LKQ (NASDAQ:LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.

Why Are We Out on LKQ?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales growth of 1.2% for the next 12 months implies demand will slow from its two-year trend
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

LKQ’s stock price of $32.34 implies a valuation ratio of 8.7x forward P/E. Check out our free in-depth research report to learn more about why LKQ doesn’t pass our bar.

Ruger (RGR)

Consensus Price Target: $44.50 (27.4% implied return)

Founded in 1949, Ruger (NYSE:RGR) is an American manufacturer of firearms for the commercial sporting market.

Why Do We Steer Clear of RGR?

1. Products and services aren't resonating with the market as its revenue declined by 3.9% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.6% annually
3. Waning returns on capital imply its previous profit engines are losing steam

At $34.93 per share, Ruger trades at 19.6x forward EV-to-EBITDA. If you’re considering RGR for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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