3 of Wall Street's Favorite Stocks Skating on Thin Ice

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.

Arcos Dorados (ARCO)

Consensus Price Target: $10.96 (36.5% implied return)

Translating to “Golden Arches” in Spanish, Arcos Dorados (NYSE:ARCO) is the master franchisee of the McDonald's brand in Latin America and the Caribbean, responsible for its operations and growth in over 20 countries.

Why Does ARCO Fall Short?

1. Estimated sales growth of 5.2% for the next 12 months implies demand will slow from its five-year trend
2. Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 13.4%
3. Poor free cash flow margin of -0.4% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $8.03 per share, Arcos Dorados trades at 0.3x forward price-to-sales. If you’re considering ARCO for your portfolio, see our FREE research report to learn more.

MillerKnoll (MLKN)

Consensus Price Target: $30.50 (82.2% implied return)

Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.

Why Are We Out on MLKN?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.8% annually over the last two years
2. Earnings per share fell by 9.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.7 percentage points

MillerKnoll is trading at $16.74 per share, or 6.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why MLKN doesn’t pass our bar.

Neogen (NEOG)

Consensus Price Target: $9 (75.4% implied return)

Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.

Why Do We Avoid NEOG?

1. Incremental sales over the last five years were much less profitable as its earnings per share fell by 7.5% annually while its revenue grew
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Neogen’s stock price of $5.13 implies a valuation ratio of 9.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than NEOG.

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.