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.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. That said, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.
nCino (NCNO)
Consensus Price Target: $24 (45.6% implied return)
Born from the internal technology needs of a community bank in 2011, nCino (NASDAQ: NCNO) provides cloud-based software that helps financial institutions streamline client onboarding, loan origination, and account opening processes.
Why Are We Wary of NCNO?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 10.2% underwhelmed
- Estimated sales growth of 7.9% for the next 12 months implies demand will slow from its two-year trend
- High servicing costs result in a relatively inferior gross margin of 60.8% that must be offset through increased usage
At $16.49 per share, nCino trades at 2.7x forward price-to-sales. Read our free research report to see why you should think twice about including NCNO in your portfolio.
Array (ARRY)
Consensus Price Target: $10.04 (33.4% implied return)
Going public in October 2020, Array (NASDAQ: ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.
Why Should You Sell ARRY?
- Annual sales declines of 9.7% for the past two years show its products and services struggled to connect with the market during this cycle
- Low free cash flow margin of -0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Array is trading at $7.53 per share, or 10.2x forward P/E. Check out our free in-depth research report to learn more about why ARRY doesn’t pass our bar.
NeoGenomics (NEO)
Consensus Price Target: $14.81 (91% implied return)
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ: NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Is NEO Risky?
- Issuance of new shares over the last five years caused its earnings per share to fall by 3% annually while its revenue grew
- Push for growth has led to negative returns on capital, signaling value destruction
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
NeoGenomics’s stock price of $7.76 implies a valuation ratio of 43.9x forward P/E. If you’re considering NEO for your portfolio, see our FREE research report to learn more.
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