3 Hyped Up Stocks Facing Headwinds

Great things are happening to the stocks in this article. They’re all outperforming the market over the last month because of positive catalysts such as a new product line, constructive news flow, or even a loyal Reddit fanbase.

While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here are three stocks getting more buzz than they deserve and some you should buy instead.

AGCO (AGCO)

One-Month Return: +34%

With a history that features both organic growth and acquisitions, AGCO (NYSE:AGCO) designs, manufactures, and sells agricultural machinery and related technology.

Why Should You Dump AGCO?

1. 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
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 46.7% annually
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

AGCO is trading at $107.10 per share, or 22.6x forward P/E. Read our free research report to see why you should think twice about including AGCO in your portfolio.

Shyft (SHYF)

One-Month Return: +33.9%

Notably receiving an order from FedEx for electric vehicles, Shyft (NASDAQ:SHYF) offers specialty vehicles and truck bodies for various industries.

Why Do We Think SHYF Will Underperform?

1. Sales tumbled by 13.7% annually over the last two years, showing market trends are working against its favor during this cycle
2. Free cash flow margin shrank by 6.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Waning returns on capital imply its previous profit engines are losing steam

At $9.55 per share, Shyft trades at 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than SHYF.

TransUnion (TRU)

One-Month Return: +29.9%

One of the three major credit bureaus in the United States alongside Equifax and Experian, TransUnion (NYSE:TRU) is a global information and insights company that provides credit reports, fraud prevention tools, and data analytics to help businesses make decisions and consumers manage their financial health.

Why Does TRU Give Us Pause?

1. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 2 percentage points
2. Free cash flow margin shrank by 10.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging

TransUnion’s stock price of $91.87 implies a valuation ratio of 21.8x forward P/E. To fully understand why you should be careful with TRU, check out our full research report (it’s free).

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