3 Inflated Stocks We're Skeptical Of

Each stock in this article is trading near its 52-week high. These elevated prices usually indicate some degree of investor confidence, business improvements, or favorable market conditions.

But not every company with momentum is a long-term winner, and plenty of investors have lost money betting on short-term fads. All that said, here are three overhyped stocks that may correct and some you should consider instead.

Zumiez (ZUMZ)

One-Month Return: +12.6%

With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ:ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.

Why Do We Think ZUMZ Will Underperform?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Revenue base of $900.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Suboptimal cost structure is highlighted by its history of operating margin losses

Zumiez’s stock price of $22.08 implies a valuation ratio of 42.5x forward P/E. Check out our free in-depth research report to learn more about why ZUMZ doesn’t pass our bar.

Cummins (CMI)

One-Month Return: +3.3%

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.

Why Does CMI Give Us Pause?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.3% over the last two years was below our standards for the industrials sector
2. Free cash flow margin dropped by 6.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Eroding returns on capital suggest its historical profit centers are aging

At $436.18 per share, Cummins trades at 20.3x forward P/E. To fully understand why you should be careful with CMI, check out our full research report (it’s free for active Edge members).

Brink's (BCO)

One-Month Return: -3.3%

Known for its iconic armored trucks that have been a fixture in American cities since 1859, Brink's (NYSE:BCO) provides secure transportation and management of cash and valuables for banks, retailers, and other businesses worldwide.

Why Are We Wary of BCO?

1. 3.5% annual revenue growth over the last two years was slower than its business services peers
2. Free cash flow margin dropped by 1.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Brink's is trading at $113 per share, or 13.2x forward P/E. Read our free research report to see why you should think twice about including BCO in your portfolio.

High-Quality Stocks for All Market Conditions

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