3 Low-Volatility Stocks with Warning Signs
Low-volatility stocks may offer stability, but that often comes at the cost of slower growth and the upside potential of more dynamic companies.
Choosing the wrong investments can cause you to fall behind, which is why we started StockStory - to separate the winners from the losers. Keeping that in mind, here are three low-volatility stocks to steer clear of and a few better alternatives.
Darden (DRI)
Rolling One-Year Beta: 0.79
Founded in 1968 as Red Lobster, Darden (NYSE:DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Is DRI Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6.5% over the last seven years was below our standards for the restaurant sector
- Estimated sales growth of 3.9% for the next 12 months implies demand will slow from its seven-year trend
- Lacking pricing power results in an inferior gross margin of 21.7% that must be offset by turning more tables
Darden is trading at $201.07 per share, or 17.6x forward P/E. To fully understand why you should be careful with DRI, check out our full research report (it’s free).
Renasant (RNST)
Rolling One-Year Beta: 0.48
Founded in 1904 during a time when the South was rebuilding its economy, Renasant (NYSE:RNST) is a regional bank holding company that offers banking, wealth management, insurance, and specialized lending services throughout the Southeast.
Why Are We Wary of RNST?
- Estimated net interest income growth of 4% for the next 12 months implies demand will slow from its five-year trend
- Performance over the past five years shows its incremental sales were less profitable, as its 4.9% annual earnings per share growth trailed its revenue gains
- Muted 3% annual tangible book value per share growth over the last two years shows its capital generation lagged behind its banking peers
Renasant’s stock price of $39.29 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why RNST doesn’t pass our bar.
Oceaneering (OII)
Rolling One-Year Beta: 0.35
Deploying a fleet of 250 tethered underwater robots around the globe, Oceaneering International (NYSE:OII) provides remotely operated underwater vehicles and subsea equipment for offshore energy exploration.
Why Do We Think OII Will Underperform?
- Muted 9.8% annual revenue growth over the last five years shows its demand lagged behind its energy upstream and integrated energy peers
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 17.7%
- Poor free cash flow margin of 4.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $44.53 per share, Oceaneering trades at 20.1x forward P/E. Read our free research report to see why you should think twice about including OII in your portfolio.
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