Market swings can be tough to stomach, and volatile stocks often experience exaggerated moves in both directions. While many thrive during risk-on environments, many also struggle to maintain investor confidence when the ride gets bumpy.
At StockStory, our job is to help you avoid costly mistakes and stay on the right side of the trade. Keeping that in mind, here are three volatile stocks to steer clear of and a few better alternatives.
Applied Industrial (AIT)
Rolling One-Year Beta: 1.25
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE: AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Are We Cautious About AIT?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Estimated sales growth of 5.1% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6% annually
At $253.02 per share, Applied Industrial trades at 24.1x forward P/E. Check out our free in-depth research report to learn more about why AIT doesn’t pass our bar.
Covenant Logistics (CVLG)
Rolling One-Year Beta: 1.28
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ: CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Are We Out on CVLG?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Free cash flow margin dropped by 12.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Covenant Logistics is trading at $21.64 per share, or 12x forward P/E. To fully understand why you should be careful with CVLG, check out our full research report (it’s free for active Edge members).
Encore Capital Group (ECPG)
Rolling One-Year Beta: 1.06
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Does ECPG Worry Us?
- Muted 1.3% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Earnings per share fell by 15.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- 11× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Encore Capital Group’s stock price of $52.99 implies a valuation ratio of 7.1x forward P/E. If you’re considering ECPG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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