3 Low-Volatility Stocks in the Doghouse

A stock with low volatility can be reassuring, but it doesn’t always mean strong long-term performance. Investors who prioritize stability may miss out on higher-reward opportunities elsewhere.

Luckily for you, StockStory helps you navigate which companies are truly worth holding. Keeping that in mind, here are three low-volatility stocks to steer clear of and a few better alternatives.

First Watch (FWRG)

Rolling One-Year Beta: 0.58

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ:FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Why Is FWRG Not Exciting?

1. Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $15.90 per share, First Watch trades at 39.6x forward P/E. If you’re considering FWRG for your portfolio, see our FREE research report to learn more.

GMS (GMS)

Rolling One-Year Beta: 0.80

Founded in 1971, GMS (NYSE:GMS) distributes specialty building materials including wallboard, ceilings, and insulation products, to the construction industry.

Why Does GMS Worry Us?

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. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Earnings per share have contracted by 18.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

GMS is trading at $99.87 per share, or 16.2x forward P/E. Check out our free in-depth research report to learn more about why GMS doesn’t pass our bar.

Genpact (G)

Rolling One-Year Beta: 0.78

Originally spun off from General Electric in 2005 to provide business process services, Genpact (NYSE:G) is a global professional services firm that helps businesses transform their operations through digital technology, AI, and data analytics solutions.

Why Does G Fall Short?

1. Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 9.4% annually
3. Free cash flow margin shrank by 4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Genpact’s stock price of $42.20 implies a valuation ratio of 11.7x forward P/E. Read our free research report to see why you should think twice about including G in your portfolio.

Stocks We Like More

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