3 of Wall Street's Favorite Stocks We Find Risky

Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.

Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. Keeping that in mind, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.

Edgewell Personal Care (EPC)

Consensus Price Target: $26 (30.3% implied return)

Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.

Why Do We Pass on EPC?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Performance over the past three years shows each sale was less profitable, as its earnings per share fell by 2.6% annually
3. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.9 percentage points

Edgewell Personal Care’s stock price of $19.95 implies a valuation ratio of 6.2x forward P/E. Read our free research report to see why you should think twice about including EPC in your portfolio.

Sabre (SABR)

Consensus Price Target: $2.76 (48.3% implied return)

Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.

Why Does SABR Worry Us?

1. Demand for its offerings was relatively low as its number of central reservation system transactions has underwhelmed
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Sabre is trading at $1.86 per share, or 5.8x forward P/E. To fully understand why you should be careful with SABR, check out our full research report (it’s free).

LGI Homes (LGIH)

Consensus Price Target: $75.67 (35.4% implied return)

Based in Texas, LGI Homes (NASDAQ:LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.

Why Is LGIH Risky?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 10.4% decline in its backlog
2. Eroding returns on capital suggest its historical profit centers are aging
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $55.89 per share, LGI Homes trades at 8.4x forward P/E. If you’re considering LGIH for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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