3 Overlooked Stocks Showing Red Flags

Wall Street’s Rare Bearish Calls: What You Need to Know

It’s uncommon for major financial institutions to issue negative outlooks on companies, as doing so can put their other lucrative business relationships, such as mergers and acquisitions consulting, at risk. Despite this, the stocks discussed here have recently received cautious forecasts from Wall Street analysts.

At StockStory, we go beyond the prevailing market sentiment by conducting our own independent research to assess a company’s future potential. Below, we highlight three stocks currently facing significant headwinds, along with some alternative investment ideas to consider.

TopBuild (BLD)

Analyst Target Price: $488.60 (suggesting a -0.9% potential return)

TopBuild (NYSE:BLD), which became independent from Masco Corporation in 2015, specializes in distributing and installing insulation and other construction materials.

Key Concerns for TopBuild

• Sales have remained stagnant over the past two years, reflecting broader challenges in its target markets.
• The company’s organic growth has been sluggish, indicating a possible need for strategic changes or acquisitions to accelerate expansion.
• Annual earnings per share have increased by just 2.5% over the last two years, trailing behind industry peers.

Currently, TopBuild trades at $493.19 per share, equating to a forward price-to-earnings ratio of 24.1.

AMN Healthcare Services (AMN)

Analyst Target Price: $20.86 (implying a 1.8% potential gain)

AMN Healthcare (NYSE:AMN) connects hospitals and healthcare facilities across the U.S. with a vast network of professionals, from nurses and doctors to executives, offering staffing solutions, permanent placements, and technology services.

Why AMN Healthcare Faces Challenges

• The number of healthcare professionals on assignment has declined over the past two years, suggesting the company may need to invest in revitalizing its business.
• Earnings per share have dropped by an average of 10.5% annually over the last five years, a worrying trend given the long-term link between EPS and share price.
• Returns on capital are shrinking, indicating that the company’s most profitable opportunities may be drying up.

AMN Healthcare is currently priced at $20.49 per share, with a forward P/E ratio of 27.6.

Amentum (AMTM)

Analyst Target Price: $36.18 (projecting a 1.9% upside)

Amentum Holdings (NYSE:AMTM) operates in around 80 countries, delivering advanced engineering and technology services to U.S. government agencies, allied nations, and commercial clients in sectors such as defense, energy, and space.

Reasons for Concern with Amentum

• Annual revenue growth has averaged just 2.4% over the past three years, lagging behind other business services firms due to its already large revenue base.
• Analysts expect revenue to fall by 1.4% over the next year, signaling a potential drop in demand.
• With a free cash flow margin of only 2.3% over the last four years, the company has limited capacity to invest in growth or return capital to shareholders.

Amentum shares are trading at $35.50, reflecting a forward P/E of 14.8.

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