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.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. That said, here is one stock where Wall Street’s positive outlook is supported by strong fundamentals and two where its enthusiasm might be excessive.
Two Stocks to Sell:
Okta (OKTA)
Consensus Price Target: $100.21 (14.9% implied return)
Named after the meteorological measurement for cloud cover, Okta (NASDAQ: OKTA) provides cloud-based identity management solutions that help organizations securely connect their employees, partners, and customers to the right applications and services.
Why Does OKTA Worry Us?
- Average billings growth of 9.8% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 9% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin is forecasted to shrink by 2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Okta’s stock price of $87.22 implies a valuation ratio of 4.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OKTA.
Petco (WOOF)
Consensus Price Target: $3.52 (36.2% implied return)
Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ: WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.
Why Do We Think WOOF Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Issuance of new shares over the last three years caused its earnings per share to fall by 38.6% annually
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Petco is trading at $2.59 per share, or 10.9x forward P/E. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar.
One Stock to Buy:
Axos Financial (AX)
Consensus Price Target: $110.17 (30.4% implied return)
Originally founded as Bank of Internet USA in 1999 before rebranding in 2018, Axos Financial (NYSE: AX) is a diversified financial services company that provides digital banking, securities clearing, and investment advisory solutions to retail and business customers nationwide.
Why Are We Backing AX?
- Market share has increased this cycle as its 18.6% annual net interest income growth over the last five years was exceptional
- Differentiated product suite is reflected in its Strong performance of its loan book results in a High-yielding loan book and low cost of funds are reflected in its best-in-class net interest margin of 4.8%
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 18.1% annually
At $84.51 per share, Axos Financial trades at 1.5x forward P/B. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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