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.
However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. On that note, here are three stocks getting more buzz than they deserve and some you should buy instead.
Dollar Tree (DLTR)
One-Month Return: +14.4%
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ:DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Do We Think Twice About DLTR?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.1% over the last six years was below our standards for the consumer retail sector
- Sales are projected to tank by 21.7% over the next 12 months as demand evaporates
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Dollar Tree is trading at $114.95 per share, or 21.3x forward P/E. Dive into our free research report to see why there are better opportunities than DLTR.
Amdocs (DOX)
One-Month Return: -2.7%
Powering the digital experiences of approximately 400 communications companies worldwide, Amdocs (NASDAQ:DOX) provides software and services that help telecommunications and media companies manage customer relationships, monetize services, and automate network operations.
Why Do We Pass on DOX?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 1.6% for the past two years was weak
- Estimated sales decline of 3.5% for the next 12 months implies an even more challenging demand environment
- Free cash flow margin dropped by 4.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Amdocs’s stock price of $89.48 implies a valuation ratio of 12.3x forward P/E. Check out our free in-depth research report to learn more about why DOX doesn’t pass our bar.
First Bancorp (FBNC)
One-Month Return: +12.1%
Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ:FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.
Why Are We Wary of FBNC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5% annually over the last two years
- 28.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the company’s willingness to accept lower yields to defend its market position
- Sales were less profitable over the last two years as its earnings per share fell by 14.3% annually, worse than its revenue declines
At $46.87 per share, First Bancorp trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including FBNC in your portfolio.
Stocks We Like More
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