3 of Wall Street’s Favorite Stocks with Questionable Fundamentals
Wall Street is overwhelmingly bullish on the stocks in this article, with price targets suggesting significant upside potential. However, it’s worth remembering that analysts rarely issue sell ratings, partly because their firms often seek other business from the same companies they cover.
Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. That said, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.
AAON (AAON)
Consensus Price Target: $122.75 (28.3% implied return)
Backed by two million square feet of lab testing space, AAON (NASDAQ:AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings.
Why Are We Cautious About AAON?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 3.7 percentage points
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 21.5% annually while its revenue grew
- Free cash flow margin dropped by 14.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
AAON is trading at $95.70 per share, or 49.4x forward P/E. Dive into our free research report to see why there are better opportunities than AAON.
IQVIA (IQV)
Consensus Price Target: $231.60 (31% implied return)
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE:IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Is IQV Not Exciting?
- Annual sales growth of 4.3% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Free cash flow margin dropped by 4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
IQVIA’s stock price of $176.82 implies a valuation ratio of 13.9x forward P/E. Check out our free in-depth research report to learn more about why IQV doesn’t pass our bar.
Intercontinental Exchange (ICE)
Consensus Price Target: $198.80 (23.5% implied return)
Starting as an energy trading platform in 2000 before acquiring the iconic New York Stock Exchange in 2013, Intercontinental Exchange (NYSE:ICE) operates global financial exchanges, clearing houses, and provides data services and mortgage technology solutions to financial institutions and corporations.
Why Does ICE Fall Short?
- Annual earnings per share growth of 9% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $161 per share, Intercontinental Exchange trades at 19.9x forward P/E. To fully understand why you should be careful with ICE, check out our full research report (it’s free).
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