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 Yelp (NYSE:YELP) climbed about 2% in pre-market trading Tuesday after SunTrust Robinson Humphrey upgraded the consumer-review website from neutral to buy.
So what: Along with the upgrade, analyst Robert Peck planted a price target of $85 (from $100), representing about 29% worth of upside to yesterday's close. So while momentum traders might be turned off by Yelp's sharp pullback over the past month, Peck's call could reflect a growing sense on Wall Street that the fears surrounding its growth trajectory are becoming overblown.
Now what: According to SunTrust, Yelp's risk/reward trade-off is rather attractive at this point. "We believe there are also two company specific issues contributing (at the margin) to relative underperformance in the past month: 1) recent negative headlines, regarding FTC complaints and a somewhat related VA Supreme Court case; and 2) weak international traffic data," said Peck. "On the first item, we see little if any impact to the business/financials and offer a thorough walk-through in this report. On the second item, we flagged international expectations as perhaps too high in our initiation and view a right sizing of sentiment as healthy." When you couple that balanced perspective with Yelp's share-price weakness of late -- off about 35% from its 52-week high -- it's pretty tough to disagree with SunTrust's upgrade.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Yelp. 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.