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The S&P 500 (^GSPC) is often seen as a benchmark for strong businesses, but that doesn’t mean every stock is worth owning. Some companies face significant challenges, whether it’s stagnating growth, heavy debt, or disruptive new competitors.
Some large-cap stocks are past their peak, and StockStory is here to help you separate the winners from the laggards. That said, here are three S&P 500 stocks that don’t make the cut and some better choices instead.
EPAM (EPAM)
Market Cap: $9.01 billion
Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.
Why Does EPAM Give Us Pause?
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Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
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Free cash flow margin dropped by 6.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
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Eroding returns on capital suggest its historical profit centers are aging
EPAM’s stock price of $160.10 implies a valuation ratio of 14.1x forward price-to-earnings. To fully understand why you should be careful with EPAM, check out our full research report (it’s free).
Hewlett Packard Enterprise (HPE)
Market Cap: $21.33 billion
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Is HPE Not Exciting?
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Sizable revenue base leads to growth challenges as its 1.8% annual revenue increases over the last five years fell short of other business services companies
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Earnings per share fell by 3% annually over the last two years while its revenue grew, partly because it diluted shareholders
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ROIC of 2.9% reflects management’s challenges in identifying attractive investment opportunities
At $16.25 per share, Hewlett Packard Enterprise trades at 7.5x forward price-to-earnings. If you’re considering HPE for your portfolio, see our FREE research report to learn more.
Waters Corporation (WAT)
Market Cap: $20.1 billion
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE:WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.