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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. That said, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Etsy (ETSY)
Consensus Price Target: $87.70 (-1.5% implied return)
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NYSE:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
Why Do We Think Twice About ETSY?
- Value proposition isn’t resonating strongly as its active buyers averaged 2.1% drops over the last two years
- Lackluster growth in its average revenue per buyer coupled with its weaker engagement trends led to sluggish demand over the last two years
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 1.4% annually
At $89.02 per share, Etsy trades at 13.7x forward EV/EBITDA. To fully understand why you should be careful with ETSY, check out our full research report (it’s free).
Varonis Systems (VRNS)
Consensus Price Target: $51.06 (4.9% implied return)
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ:VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Do We Avoid VRNS?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 13% underwhelmed
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Efficiency has decreased over the last year as its operating margin fell by 1.6 percentage points
Varonis Systems is trading at $48.65 per share, or 6.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than VRNS.
Genuine Parts (GPC)
Consensus Price Target: $140.56 (5.9% implied return)
Largely targeting the professional customer, Genuine Parts (NYSE:GPC) sells auto and industrial parts such as batteries, belts, bearings, and machine fluids.
Why Are We Hesitant About GPC?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.1% for the last three years
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Subpar operating margin of 4.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
Genuine Parts’s stock price of $132.77 implies a valuation ratio of 16.4x forward P/E. Read our free research report to see why you should think twice about including GPC in your portfolio.
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