When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.

Accurately determining a company’s long-term prospects isn’t easy, especially when sentiment is weak. That’s where StockStory comes in - to help you find attractive investment candidates backed by unbiased research. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.

Paychex (PAYX)

Consensus Price Target: $100.93 (6.8% implied return)

Once known as the go-to service for small business payroll needs, Paychex (NASDAQ: PAYX) provides payroll processing, HR services, employee benefits administration, and insurance solutions to small and medium-sized businesses.

Why Does PAYX Worry Us?

1. Muted 9.9% annual revenue growth over the last five years shows its demand lagged behind its software peers
2. Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 4.6 percentage points

Paychex is trading at $94.49 per share, or 5x forward price-to-sales. Read our free research report to see why you should think twice about including PAYX in your portfolio.

eBay (EBAY)

Consensus Price Target: $108.13 (-8.4% implied return)

Originally known as the first online auction site, eBay (NASDAQ: EBAY) is one of the world’s largest online marketplaces.

Why Are We Cautious About EBAY?

1. May need to improve its platform and marketing strategy as its 1.3% average growth in active buyers underwhelmed
2. Anticipated sales growth of 5.8% for the next year implies demand will be shaky
3. Costs have risen faster than its revenue over the last few years, causing its EBITDA margin to decline by 7.4 percentage points

At $118.03 per share, eBay trades at 14.7x forward EV/EBITDA. To fully understand why you should be careful with EBAY, check out our full research report (it’s free).

Oaktree Specialty Lending (OCSL)

Consensus Price Target: $12.43 (4.4% implied return)

Managed by Oaktree Capital Management, one of the world's premier alternative investment firms, Oaktree Specialty Lending (NASDAQ: OCSL) is a business development company that provides customized financing solutions to mid-market companies across various industries.

Why Do We Avoid OCSL?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.2% annually over the last two years
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 18.9% annually, worse than its revenue
3. Tangible book value per share tumbled by 5.9% annually over the last five years, showing financials sector trends are working against its favor during this cycle

Oaktree Specialty Lending’s stock price of $11.91 implies a valuation ratio of 8.4x forward P/E. Check out our free in-depth research report to learn more about why OCSL doesn’t pass our bar.

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