3 Volatile Stocks with Warning Signs

Volatility cuts both ways - while it creates opportunities, it also increases risk, making sharp declines just as likely as big gains. This unpredictability can shake out even the most experienced investors.

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 avoid and some better opportunities instead.

Caesars Entertainment (CZR)

Rolling One-Year Beta: 1.80

Formerly Eldorado Resorts, Caesars Entertainment (NASDAQ:CZR) is a global gaming and hospitality company operating numerous casinos, hotels, and resort properties.

Why Do We Avoid CZR?

1. Sales were flat over the last two years, indicating it’s failed to expand its business
2. Poor free cash flow margin of 1.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $21.85 per share, Caesars Entertainment trades at 61.3x forward P/E. Dive into our free research report to see why there are better opportunities than CZR.

Scholastic (SCHL)

Rolling One-Year Beta: 1.07

Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ:SCHL) is an international company specializing in children's publishing, education, and media services.

Why Do We Think SCHL Will Underperform?

1. Annual revenue growth of 1.9% over the last five years was below our standards for the consumer discretionary sector
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Scholastic’s stock price of $29.77 implies a valuation ratio of 18.5x forward P/E. Read our free research report to see why you should think twice about including SCHL in your portfolio.

American Airlines (AAL)

Rolling One-Year Beta: 1.14

One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Why Are We Out on AAL?

1. Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Free cash flow margin is not anticipated to grow over the next year
3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

American Airlines is trading at $13.53 per share, or 7.7x forward P/E. If you’re considering AAL for your portfolio, see our FREE research report to learn more.

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