While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Francesca's Holdings (NASDAQ:FRAN) sank 5.5% today after Goldman Sachs downgraded the fashion apparel retailer from neutral to sell.
So what: Along with the downgrade, analyst Lindsay Drucker Mann lowered her price target to $16 (from $18), representing 22% worth of downside to yesterday's close. While contrarians might be attracted to Francesca's share-price decline during the past year, Drucker Mann thinks there's more room to fall given the structural challenges that continue to face the company.
Now what: Goldman expects Francesca's margins to compress, with same-store sales growing modestly, in upcoming quarters. "Our chief concern is that FRAN's multi-quarter stretch of deteriorating fundamentals is structural, rather than cyclical or execution driven," noted Drucker Mann. "Sentiment is already guarded, reflected in 10 days short interest, but we expect further multiple compression toward 13X P/E as fading cyclical headwinds cast a brighter light on FRAN's structural issues." Given the worrisome risks that continue to surround Francesca, it's tough to disagree with Goldman's cautious stance.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.