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.
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:
Yum China (YUMC)
Consensus Price Target: $61.69 (34.2% implied return)
One of China’s largest restaurant companies, Yum China (NYSE: YUMC) is an independent entity spun off from Yum! Brands in 2016.
Why Are We Cautious About YUMC?
- Annual sales growth of 5.2% over the last seven years lagged behind its restaurant peers as its large revenue base made it difficult to generate incremental demand
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 20.3%
Yum China is trading at $45.98 per share, or 15x forward P/E. Dive into our free research report to see why there are better opportunities than YUMC.
KB Home (KBH)
Consensus Price Target: $55.15 (22.6% implied return)
The first homebuilder to be listed on the NYSE, KB Home (NYSE: KBH) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.
Why Do We Steer Clear of KBH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 28% declines over the past two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
KB Home’s stock price of $45.00 implies a valuation ratio of 13.5x forward P/E. Check out our free in-depth research report to learn more about why KBH doesn’t pass our bar.
One Stock to Buy:
Ryan Specialty (RYAN)
Consensus Price Target: $42.88 (27% implied return)
Founded in 2010 by insurance industry veteran Patrick Ryan, Ryan Specialty (NYSE: RYAN) is a wholesale insurance broker and underwriting manager that helps retail brokers place complex or hard-to-place risks with insurance carriers.
Why Will RYAN Outperform?
- Annual revenue growth of 20.5% over the last two years was superb and indicates its market share increased during this cycle
- Earnings per share grew by 16.2% annually over the last four years and trumped its peers
- Robust free cash flow margin of 17.5% gives it many options for capital deployment
At $33.77 per share, Ryan Specialty trades at 16.1x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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