Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. That said, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Levi's (LEVI)
Consensus Price Target: $27 (33.5% implied return)
Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE:LEVI) is an apparel company renowned for its iconic denim products and classic American style.
Why Do We Think LEVI Will Underperform?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8% for the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Levi’s stock price of $20.22 implies a valuation ratio of 13.1x forward P/E. Check out our free in-depth research report to learn more about why LEVI doesn’t pass our bar.
Churchill Downs (CHDN)
Consensus Price Target: $138.08 (44.6% implied return)
Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.
Why Are We Out on CHDN?
- Annual revenue growth of 10.1% over the last two years was below our standards for the consumer discretionary sector
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Stagnant returns on capital show management has failed to improve the company’s business quality
Churchill Downs is trading at $95.48 per share, or 14.1x forward P/E. To fully understand why you should be careful with CHDN, check out our full research report (it’s free).
Cogent (CCOI)
Consensus Price Target: $30.82 (27.8% implied return)
Operating a massive network spanning 20,000 miles of fiber optic cable and connecting to over 3,200 buildings worldwide, Cogent Communications (NASDAQ:CCOI) provides high-speed Internet access, private network services, and data center colocation to businesses and bandwidth-intensive organizations across 54 countries.
Why Are We Wary of CCOI?
- Demand for its offerings was relatively low as its number of total connections has underwhelmed
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $24.12 per share, Cogent trades at 10.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CCOI.
High-Quality Stocks for All Market Conditions
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