The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. Keeping that in mind, here is one stock likely to meet or exceed Wall Street’s lofty expectations and two where consensus estimates seem disconnected from reality.
Two Business Services Stocks to Sell: MillerKnoll (MLKN)
Consensus Price Target: $32 (117% implied return)
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Are We Wary of MLKN?
Sales trends were unexciting over the last two years as its 1.4% annual growth was below the typical business services company
Earnings per share fell by 7.9% annually over the last five years while its revenue grew, partly because it diluted shareholders
Low free cash flow margin of 2.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
MillerKnoll’s stock price of $14.77 implies a valuation ratio of 7.6x forward P/E. Check out our free in-depth research report to learn more about why MLKN doesn’t pass our bar.
ABM (ABM)
Consensus Price Target: $51.86 (22.7% implied return)
With roots dating back to 1909 as a window washing company, ABM Industries (NYSE:ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.
Why Does ABM Give Us Pause?
Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.7% for the last five years
At $42.28 per share, ABM trades at 9.6x forward P/E. To fully understand why you should be careful with ABM, check out our full research report (it’s free).