When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.

At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.

Sweetgreen (SG)

Consensus Price Target: $6.83 (-4% implied return)

Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.

Why Do We Think SG Will Underperform?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
2. 11.5 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Sweetgreen is trading at $7.11 per share, or 459.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SG doesn’t pass our bar.

Tennant (TNC)

Consensus Price Target: $83.75 (2.7% implied return)

As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.

Why Do We Pass on TNC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.6% annually over the last two years
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $81.52 per share, Tennant trades at 16x forward P/E. Dive into our free research report to see why there are better opportunities than TNC.

Arrow Electronics (ARW)

Consensus Price Target: $152.50 (-19.2% implied return)

Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.

Why Are We Out on ARW?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.5% annually over the last two years
2. Sales were less profitable over the last two years as its earnings per share fell by 19.7% annually, worse than its revenue declines
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Arrow Electronics’s stock price of $187.02 implies a valuation ratio of 13.6x forward P/E. If you’re considering ARW for your portfolio, see our FREE research report to learn more.

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