3 of Wall Street's Favorite Stocks Walking a Fine Line

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.

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 estimates seem disconnected from reality and some better opportunities to consider.

Rapid7 (RPD)

Consensus Price Target: $43.34 (62.7% implied return)

Founded in 2000 with the idea that network security comes before endpoint security, Rapid7 (NASDAQ:RPD) provides software as a service that helps companies understand where they are exposed to cyber security risks, quickly detect breaches and respond to them.

Why Are We Wary of RPD?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 4.6% underwhelmed
2. Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its three-year trend
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

At $22.17 per share, Rapid7 trades at 1.6x forward price-to-sales. If you’re considering RPD for your portfolio, see our FREE research report to learn more.

Trinity (TRN)

Consensus Price Target: $36 (31.5% implied return)

Operating under the trade name TrinityRail, Trinity (NYSE:TRN) is a provider of railcar products and services in North America.

Why Are We Cautious About TRN?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Trinity is trading at $25.10 per share, or 15.2x forward price-to-earnings. Read our free research report to see why you should think twice about including TRN in your portfolio.

DXC (DXC)

Consensus Price Target: $22.56 (60% implied return)

Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE:DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.

Why Should You Sell DXC?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Earnings per share have contracted by 11.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

DXC’s stock price of $14.03 implies a valuation ratio of 4.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why DXC doesn’t pass our bar.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.