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.
Navigating these stocks isn’t easy, which is why StockStory helps you find Comfort In Chaos. Keeping that in mind, here are three volatile stocks to avoid and some better opportunities instead.
Power Integrations (POWI)
Rolling One-Year Beta: 1.93
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ: POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Are We Bearish on POWI?
- Sales tumbled by 6.4% annually over the last five years, showing market trends are working against it during this cycle
- Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its operating margin
- Sales were less profitable over the last five years as its earnings per share fell by 14.1% annually, worse than its revenue declines
Power Integrations’s stock price of $50.57 implies a valuation ratio of 31.2x forward P/E. Check out our free in-depth research report to learn more about why POWI doesn’t pass our bar.
Tesla (TSLA)
Rolling One-Year Beta: 2.16
Originally founded by Martin Eberhard and Marc Tarpenning in 2003, Tesla (NASDAQ: TSLA) is an electric vehicle company accelerating the world’s transition to sustainable energy.
Why Do We Steer Clear of TSLA?
- Tesla’s scale advantage in EV production leads to gross margins that exceed incumbents such as General Motors and Ford. However, a softer macroeconomic backdrop and tariff pressures have weighed on automobile sales, which are highly cyclical.
- The company’s execution ability is a question mark given its long history of delays, such as the Cybertruck and Robotaxi launches. Its sizeable investments in projects with uncertain return timelines, like Optimus, also raise skepticism from investors.
- On the bright side, Tesla’s Megapack product solves a critical problem for utilities needing renewable energy storage solutions. This innovation has made the energy segment the most profitable and fastest-growing business line for the company.
At $358.17 per share, Tesla trades at 198.3x forward price-to-earnings. If you’re considering TSLA for your portfolio, see our FREE research report to learn more.
Capital One (COF)
Rolling One-Year Beta: 1.32
Starting as a credit card company in 1988 before expanding into a full-service bank, Capital One (NYSE: COF) is a financial services company that offers credit cards, auto loans, banking services, and commercial lending to consumers and businesses.
Why Does COF Give Us Pause?
- Earnings per share fell by 4.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 1.6% annually over the last five years
- ROE of 9.2% reflects management’s challenges in identifying attractive investment opportunities
Capital One is trading at $197.31 per share, or 9.1x forward P/E. To fully understand why you should be careful with COF, check out our full research report (it’s free).
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