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. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.
Hyatt Hotels (H)
Consensus Price Target: $176.45 (5.1% implied return)
Founded in 1957, Hyatt Hotels (NYSE:H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.
Why Should You Sell H?
- Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
- Operating margin of 4.8% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Hyatt Hotels’s stock price of $167.94 implies a valuation ratio of 56.4x forward P/E. To fully understand why you should be careful with H, check out our full research report (it’s free).
Choice Hotels (CHH)
Consensus Price Target: $106.07 (-1.1% implied return)
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Why Do We Avoid CHH?
- Softer revenue per room over the past two years suggests it might have to invest in new amenities such as restaurants and bars to attract customers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.3% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Choice Hotels is trading at $107.21 per share, or 15.1x forward P/E. Dive into our free research report to see why there are better opportunities than CHH.
Ingersoll Rand (IR)
Consensus Price Target: $89.77 (3.2% implied return)
Started with the invention of the steam drill, Ingersoll Rand (NYSE:IR) provides mission-critical air, gas, liquid, and solid flow creation solutions.
Why Does IR Worry Us?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales growth of 5.7% for the next 12 months is soft and implies weaker demand
- Underwhelming 5.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $87.01 per share, Ingersoll Rand trades at 25.4x forward P/E. Read our free research report to see why you should think twice about including IR in your portfolio.
Stocks We Like More
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