Low-volatility stocks may offer stability, but that often comes at the cost of slower growth and the upside potential of more dynamic companies.
Luckily for you, StockStory helps you navigate which companies are truly worth holding. Keeping that in mind, here are three low-volatility stocks to avoid and some better opportunities instead.
Grocery Outlet (GO)
Rolling One-Year Beta: 0.58
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Why Are We Cautious About GO?
- Operating margin of 1.8% has deteriorated over the last year, hampering its adaptability and competitive positioning
- Underwhelming 2.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $13.38 per share, Grocery Outlet trades at 17.3x forward P/E. Read our free research report to see why you should think twice about including GO in your portfolio.
Bath and Body Works (BBWI)
Rolling One-Year Beta: 0.95
Spun off from L Brands in 2020, Bath & Body Works (NYSE:BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Does BBWI Worry Us?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Estimated sales growth of 2.3% for the next 12 months implies demand will slow from its six-year trend
- Earnings growth underperformed the sector average over the last six years as its EPS grew by just 9.1% annually
Bath and Body Works is trading at $25.48 per share, or 6.9x forward P/E. Check out our free in-depth research report to learn more about why BBWI doesn’t pass our bar.
Mattel (MAT)
Rolling One-Year Beta: 0.79
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ:MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Is MAT Not Exciting?
- Annual revenue growth of 1.8% over the last two years was below our standards for the consumer discretionary sector
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Mattel’s stock price of $19.03 implies a valuation ratio of 11.4x forward P/E. To fully understand why you should be careful with MAT, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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