Equity analysts can be a finnicky bunch. While there are some stocks that are universally adored and praised, such as chipmaker Nvidia (NASDAQ:NVDA), there are many other stocks that are reviled and criticized by analysts. Many companies that were once in the good books of analysts have now been relegated to the dog house.
Poor earnings, bad management and questionable strategies can all lead to analysts downgrading the rating and price target on a stock. These downgrades and negative appraisals can often become a self-fulfilling prophecy, contributing to poor sentiment around a security and leading to further declines in the share price. This is a big reason why publicly traded companies spend lavishly on “investor relations” and hold “analyst days” where they seek to sell the analyst community on their strategies and outlook, and try to courier favor with the people who can influence the fate of their share price. Here is analyst alert: three stocks to sell while you can.
Lululemon (LULU)
Analysts at HSBC (NYSE:HSBC) downgraded Lululemon Athletica (NASDAQ:LULU), lowering their rating on LULU stock to “hold” from “buy” while maintaining a price target of $500 per share. The analysts at HSBC said that they expect Lululemon’s performance gap to narrow over the next two years.
The downgrade came despite Lululemon revising up its fourth-quarter 2023 sales and profit forecasts on strong sales during the year-end holidays. In December, the athletic apparel maker had forecast tepid holiday sales and said it was worried about weak consumer spending. But now, Lululemon says that it is pleased with its performance during the Christmas shopping season and expects to report strong Q4 2023 results on March 26.
The HSBC downgrade also comes as Lululemon introduces a new line of men’s sneakers as it seeks to gain market share in the male sportswear segment. The men’s footwear includes two running shoes and a casual sneaker, all of which went on sale Feb. 13. Lululemon entered the footwear space two years ago with a line of women’s sneakers. LULU stock has been in decline lately, having fallen 7% so far in 2024.
Nike (NKE)
Another sneaker and athletic apparel company, and Lululemon competitor, that has also been hit with analyst downgrades lately is Nike (NYSE:NKE). Most recently, analysts at Oppenheimer (NYSE:OPY) downgraded NKE stock to a “hold” equivalent rating from “buy” previously, and lowered their price target on the company’s shares to $110 from $150. The analysts said in a note to clients that while Nike’s long-term prospects remain compelling, it is concerned that sales will remain soft over the next several quarters.
Nike has struggled coming out of the Covid-19 pandemic. Just before Christmas, the company issued lackluster financial results that sent its stock down more than 10% in a single trading day. More recently, Nike parted ways with golfer Tiger Woods after a decades long endorsement deal, and announced that it plans to cut 2% of its global workforce, or more than 1,600 jobs, to lower expenses amid weak demand. The continued slump has weighed heavily on NKE stock, which is down 12% over the past year, and down 42% from an all-time high reached in November 2021.
Shopify (SHOP)
Over the last few months, e-commerce company Shopify (NYSE:SHOP) has been hit with a slew of analyst downgrades. JMP Securities downgraded SHOP stock to a “hold” equivalent rating from “buy” and completely removed its price target on the stock. Piper Sandler (NYSE:PIPR) also downgraded Shopify’s stock, citing what it called an “untenable valuation.” Analysts have raised concerns about the rapid growth in SHOP stock over the last 12 months, noting that the share price has nearly doubled and questioning whether the company’s earnings justify the increase.
Shopify recently issued earnings that narrowly beat expectations for its fourth-quarter sales, sending SHOP stock down 9% as a result. The company, which provides tools and services that help third parties sell items online, reported earnings per share of 51 cents on revenue of $2.14 billion. Analysts had expected the company to post earnings of 30 cents a share on $2.08 billion in sales. Looking forward, Shopify said that for 2024 it expects revenue to grow at a low-twenties percentage rate and for its free cash flow as a percentage of revenue to be in the high-single digits. Investors apparently wanted more.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
