3 Hyped Up Stocks with Mounting Challenges

MRVL Cover Image
3 Hyped Up Stocks with Mounting Challenges

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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?

  1. 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

  2. Historical operating losses point to an inefficient cost structure

  3. 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?

  1. Flat sales over the last two years suggest it must find different ways to grow during this cycle

  2. 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

  3. 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?

  1. Muted 3.9% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers

  2. 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

  3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned