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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.

Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. Keeping that in mind, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.

Microchip Technology (MCHP)

Consensus Price Target: $63.34 (9.2% implied return)

Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.

Why Do We Avoid MCHP?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last five years

2. Inability to adjust its cost structure while its revenue declined over the last five years led to a 11.6 percentage point drop in the company’s operating margin

3. Free cash flow margin shrank by 16 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $58.01 per share, Microchip Technology trades at 51.4x forward P/E. Check out our free in-depth research report to learn more about why MCHP doesn’t pass our bar.

Somnigroup (SGI)

Consensus Price Target: $70.50 (9.8% implied return)

Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products

Why Are We Hesitant About SGI?

1. Annual revenue growth of 4.6% over the last two years was below our standards for the consumer discretionary sector

2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Somnigroup is trading at $64.18 per share, or 22.4x forward P/E. To fully understand why you should be careful with SGI, check out our full research report (it’s free).

Avis Budget Group (CAR)

Consensus Price Target: $116.75 (-0.8% implied return)

The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ:CAR) is a provider of car rental and mobility solutions.

Why Is CAR Risky?

1. Demand for its offerings was relatively low as its number of available rental days - car rental has underwhelmed

2. Diminishing returns on capital suggest its earlier profit pools are drying up

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders