Analysts reset their expectations for stocks like CrowdStrike (NASDAQ: CRWD), Lululemon (NASDAQ: LULU), Celsius Holdings (NASDAQ: CELH), and Five Below (NASDAQ: FIVE) following the Q2 earnings cycle, opening up opportunities for investors. While analysts' sentiment helped to lower the stock prices, they continue to see value in the underlying businesses and the sell-offs are overblown. The takeaway is that these stocks are among the top ten names on MarketBeat’s list of most downgraded stocks, but they are buyable names with upside for investors over the long term.
CrowdStrike: The Most Downgraded Stock Has 30% Upside Potential
CrowdStrike is the most downgraded stock coming out of the Q2 earnings cycle, with 45 downgrades and lowered price targets. However, the stock has also garnered numerous upgrades and price target increases that offset the negativity. The net result is that analysts show an increased conviction in the consensus estimates. The consensus is that this stock is a Moderate Buy with a 30% upside potential.
The cause for the revisions is the results and guidance, which included a reduced expectation for revenue and earnings. The offsetting and mitigating factors are that growth will be sustained at a high double-digit rate, the decrease is due to incentives intended to mitigate the impact of the July service outage, and the long-term thesis is still intact. CrowdStrike is a leading provider of scalable, cloud-based, zero-trust enterprise quality cyber security supported by trends. Trends in 2024 include double-digit growth in cyberattacks and an exponential increase in their cost for businesses.
Why Analysts Still See Growth Potential for Celsius Holdings
Celsius Holdings is the second most downgraded name from the Q2 earnings cycle. The reason for the downshift in analysts' sentiment and stock price is the end of its hyper-growth phase, which means no more premium valuation. However, trading at 30x next year’s earnings with earnings expected to grow by 25%, the stock presents a value for investors today.
The takeaway from the analyst activity is that they rate it as a Moderate Buy and see it advancing more than 75% at the consensus. Most of the fresh targets suggest a less-than-consensus price point is likely, but even the low-end range implies a double-digit upside is likely.
Lululemon Sells Off on Decelerating Sales Growth
Lululemon shares are under pressure from decelerating sales growth, leading analysts to lower their stock price targets. Details from the Q2 release include sales slowing to only 7% growth, weaker than expected but offset by margin improvement and better-than-expected earnings. The critical detail is that broader economic conditions are pressuring consumer habits, and without product innovation, there is no catalyst to reinvigorate interest.
The upshot is that Lululemon is sustaining cash flow and balance sheet health, setting itself up for an accelerated rebound when broader economic conditions ease. That is expected to begin soon, with the FOMC set to lower interest rates. Analysts rate it as a Moderate Buy with a 45% upside potential at the consensus.
Five Below Trades at Rock Bottom Prices
Five Below is trading at rock bottom prices, just above the lowest target a Wall Street analyst set, after shedding 50% of its value this year. The sell-off is due to slowing growth and tepid guidance from discount retailers but is overblown, considering the company produces industry-leading growth and has been widening its margin. The critical details in the analysts' data are that this stock’s rating is down to Hold from Buy, and the price target was cut by more than 50%.
However, the consensus target still implies a 35% upside, and the freshest targets are at least 15% above the recent action with the potential for an upgrade cycle building. The analysts are also cutting their revenue growth targets to align with other discount retailers, which is underestimating the strengths shown in the fiscal first half.
