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.
Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Dropbox (DBX)
Consensus Price Target: $27.36 (-2.3% implied return)
Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ:DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.
Why Do We Think Twice About DBX?
- Billings didn’t grow over the last year, suggesting the company struggled to sell its software and might have to lower prices to stimulate growth
- Sales are projected to tank by 2.7% over the next 12 months as demand evaporates
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3 percentage points
Dropbox’s stock price of $28 implies a valuation ratio of 3.3x forward price-to-sales. Read our free research report to see why you should think twice about including DBX in your portfolio.
Q2 Holdings (QTWO)
Consensus Price Target: $101.26 (7.1% implied return)
Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) offers software-as-a-service that enables small banks to provide online banking and consumer lending services to their clients.
Why Does QTWO Fall Short?
- Revenue increased by 11.8% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Gross margin of 51.8% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.4 percentage points over the next year
At $94.59 per share, Q2 Holdings trades at 7.7x forward price-to-sales. If you’re considering QTWO for your portfolio, see our FREE research report to learn more.
BWX (BWXT)
Consensus Price Target: $141.22 (-1.2% implied return)
Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE:BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.
Why Is BWXT Not Exciting?
- Annual revenue growth of 6.6% over the last five years was below our standards for the industrials sector
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 2.4 percentage points
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3% annually
BWX is trading at $142.91 per share, or 39.7x forward P/E. Dive into our free research report to see why there are better opportunities than BWXT.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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