In This Article:
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.
However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. Keeping that in mind, here are three stocks getting more buzz than they deserve and some you should buy instead.
Marvell Technology (MRVL)
One-Month Return: +3.4%
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Is MRVL Not Exciting?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last two years
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Historical operating losses point to an inefficient cost structure
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Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
At $60.72 per share, Marvell Technology trades at 21.8x forward P/E. To fully understand why you should be careful with MRVL, check out our full research report (it’s free).
Douglas Dynamics (PLOW)
One-Month Return: +12.1%
Once manufacturing snowplows designed for the iconic jeep vehicle precursor, Douglas Dynamics (NYSE:PLOW) offers snow and ice equipment for the roads and sidewalks.
Why Is PLOW Risky?
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Flat sales over the last two years suggest it must find different ways to grow during this cycle
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Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.4% annually while its revenue grew
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Free cash flow margin dropped by 5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Douglas Dynamics’s stock price of $26.97 implies a valuation ratio of 14x forward P/E. Check out our free in-depth research report to learn more about why PLOW doesn’t pass our bar.
AdaptHealth (AHCO)
One-Month Return: +7.6%
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ:AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Are We Cautious About AHCO?
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Muted 3.9% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
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ROIC of 1.2% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
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Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned