A highly volatile stock can deliver big gains - or just as easily wipe out a portfolio if things go south. While some investors embrace risk, mistakes can be costly for those who aren’t prepared.
These stocks can be a rollercoaster, and StockStory is here to guide you through the ups and downs. That said, here are three volatile stocks to steer clear of and a few better alternatives.
Q2 Holdings (QTWO)
Rolling One-Year Beta: 1.62
Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) offers software-as-a-service that enables small banks to provide online banking and consumer lending services to their clients.
Why Is QTWO Not Exciting?
- Revenue increased by 11.7% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Gross margin of 52.6% reflects its high servicing costs
- Projected 3.3 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Q2 Holdings is trading at $74.06 per share, or 6.3x forward price-to-sales. If you’re considering QTWO for your portfolio, see our FREE research report to learn more.
Boot Barn (BOOT)
Rolling One-Year Beta: 1.73
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE:BOOT) is a western-inspired apparel and footwear retailer.
Why Does BOOT Fall Short?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Modest revenue base of $1.99 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- 3.9 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Boot Barn’s stock price of $165.78 implies a valuation ratio of 26.3x forward P/E. To fully understand why you should be careful with BOOT, check out our full research report (it’s free).
Sphere Entertainment (SPHR)
Rolling One-Year Beta: 1.91
Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE:SPHR) hosts live entertainment events and distributes content across various media platforms.
Why Are We Out on SPHR?
- Lackluster 2.4% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 7.1% annually
- Cash-burning history makes us doubt the long-term viability of its business model
At $40.52 per share, Sphere Entertainment trades at 8.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SPHR in your portfolio.
High-Quality Stocks for All Market Conditions
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