Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

It's Tuesday on Wall Street -- and it looks like things are going to get rough. The ratings watchers at StreetInsider.com show downgrades outnumbering upgrades by a margin of 4:1 today.

Investment banker Goldman Sachs isn't helping matters much, either.

This morning, Goldman waded into the European automotive sector, initiating coverage on five companies, with three neutral ratings and a pair of sells. Mercedes maker Daimler is one of Goldman's sell-rated stocks, and Fiat Chrysler Automobiles (NYSE:FCAU) is the other.

And this is where our story begins.

Glowing red arrow trending down

Image source: Getty Images.

Downgrading Fiat

A 5% decline in sales in the year's first half, troubles with the introduction of Mercedes' new GLE SUV, and a North American trucking market that has peaked explain Goldman's pessimism regarding Daimler. But what could this analyst possibly have against Fiat Chrysler, which has roughly tripled its sales over the past decade, and now boasts sales within spitting distance of Ford or GM?

TheFly.com has some of the details. Fiat's North American division has generally outperformed rivals over the past three years. The North American car market (like the truck market) appears to have peaked, however, and Goldman therefore sees "limited scope for further earnings growth from North America." Meanwhile in Europe, the analyst thinks the automaker needs "time to resolve" challenges, while sales trends in Latin America are "difficult to predict."

All of which adds up to Goldman forecasting earnings for Fiat this year that are about 5% below what other analysts are expecting.

Surveying the field

So what are these "other analysts" expecting? Here we turn to S&P Global Market Intelligence for the data.

According to S&P, the consensus of the two dozen-odd analysts who follow Fiat stock is that the company will earn $2.94 per share this year, as calculated according to generally accepted accounting principles (GAAP), on total worldwide sales of $124.6 billion. Goldman, therefore, coming in 5% below that estimate, appears to think that earnings of only $2.79 or so are more likely -- and that these earnings would be bad enough to merit a sell rating for Fiat.

Valuing Fiat

But is that a fair?

After all, Fiat only earned $2.59 per share last year. Even $2.79 in per-share profit would therefore represent an increase -- only 8% growth to be sure, but it would still be the company's fourth year in a row of positive GAAP earnings growth. And with the stock costing only $13.65 today (down 4% from yesterday, and probably hurt by Goldman's sell rating, by the way), shares trade for only 4.9 times what Goldman thinks Fiat will earn -- and only 4.6 times what the other analysts predict.

Granted, forecasts for next year aren't quite so bright. The consensus right now has Fiat's run of profit growth finally ending in 2020, with earnings subsiding to $2.57 per share -- a couple cents less than it earned last year -- and sales falling slightly as well.

Still, most analysts expect this earnings dip to be temporary, with profits growing again as soon as 2021. And with Fiat shares selling for less than five times annual profits, and the company paying out a 5.2% dividend yield, the logical conclusion would appear to be that the stock is "cheap" -- and that investors should be content to just cash their dividend checks and wait for growth to resume in 2021.

The real risk for Fiat investors

Could it be that this is really the best way for investors to play Fiat Chrysler stock?

Perhaps. But what if those analysts are all wrong, and Goldman is right? If you ask me, this is the risk for investors. If all there is to fear is a small dip in earnings in 2020, quickly replaced by stronger profits in 2021, then yes, clearly, investors are better off being patient.

The real worry, though, is that the sales shortfall we saw in the first quarter of this year -- sales down 5% in euro terms, and profits cut nearly in half -- will grow as the year progresses, and Fiat won't do nearly as well as these analysts predict. And when you consider that the $4.2 billion decline in Q1 2018 sales compared to Q1 2019 was already nearly as big as the $5.3 billion drop in sales that most analysts forecast for the whole year, I wonder if that risk might be bigger than many investors realize.

Given how quickly things fell apart in Q1, I can't say that Goldman Sachs is wrong to rate Fiat Chrysler stock a sell today -- and I really worry that it might be right.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.