3 of Wall Street’s Favorite Stocks We Keep Off Our Radar

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

Brinker International (EAT)

Consensus Price Target: $189.14 (29.9% implied return)

Founded by Norman Brinker in Dallas, Brinker International (NYSE:EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.

Why Do We Think Twice About EAT?

1. Lack of new restaurants puts a ceiling on its growth and reflects a focus on optimizing sales at existing locations
2. Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its six-year trend
3. Gross margin of 17.7% is below its competitors, leaving less money for marketing and promotions

At $145.62 per share, Brinker International trades at 12.8x forward P/E. If you’re considering EAT for your portfolio, see our FREE research report to learn more.

Shoals (SHLS)

Consensus Price Target: $9.63 (57.1% implied return)

Started in Huntsville, Alabama, Shoals (NASDAQ:SHLS) designs and manufactures products that make solar energy systems work more efficiently.

Why Does SHLS Worry Us?

1. Sales tumbled by 1.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Waning returns on capital imply its previous profit engines are losing steam

Shoals is trading at $6.13 per share, or 14.6x forward P/E. Check out our free in-depth research report to learn more about why SHLS doesn’t pass our bar.

Knight-Swift Transportation (KNX)

Consensus Price Target: $64.26 (19.8% implied return)

Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.

Why Is KNX Risky?

1. Annual revenue growth of 2.3% over the last two years was below our standards for the industrials sector
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.4% annually
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Knight-Swift Transportation’s stock price of $53.64 implies a valuation ratio of 27.8x forward P/E. To fully understand why you should be careful with KNX, check out our full research report (it’s free).

Stocks We Like More

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