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: $7.81 (1.1% 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 Pass on SG?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- 8.7 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Sweetgreen’s stock price of $7.73 implies a valuation ratio of 150.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SG in your portfolio.
T. Rowe Price (TROW)
Consensus Price Target: $97.83 (-18.4% implied return)
Founded in 1937 by Thomas Rowe Price Jr., who pioneered the growth stock investing approach, T. Rowe Price (NASDAQ: TROW) is an investment management firm that offers mutual funds, advisory services, and retirement planning solutions to individuals and institutions.
Why Does TROW Give Us Pause?
- 2.6% annual revenue growth over the last five years was slower than its financials peers
- Earnings per share fell by 1.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
T. Rowe Price is trading at $119.95 per share, or 12.6x forward P/E. If you’re considering TROW for your portfolio, see our FREE research report to learn more.
MGIC Investment (MTG)
Consensus Price Target: $28.67 (1.7% implied return)
Founded in 1957 when the modern mortgage insurance industry was in its infancy, MGIC Investment (NYSE: MTG) provides private mortgage insurance that protects lenders when homebuyers default on their loans, enabling borrowers to purchase homes with smaller down payments.
Why Does MTG Fall Short?
- Insurance offerings face significant market challenges this cycle as net premiums earned contracted by 1.2% annually over the last five years
- Estimated sales decline of 1.3% for the next 12 months implies a challenging demand environment
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.4% annually
At $28.19 per share, MGIC Investment trades at 1.1x forward P/B. Check out our free in-depth research report to learn more about why MTG doesn’t pass our bar.
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