The past year hasn’t been kind to the stocks featured in this article. Each has tumbled to their lowest points in 12 months, leaving investors to decide whether they’re witnessing fire sales or falling knives.
Price charts only tell part of the story. Our team at StockStory evaluates each company’s underlying fundamentals to separate temporary setbacks from structural declines. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Coty (COTY)
One-Month Return: -5%
With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Should You Sell COTY?
-
Absence of organic revenue growth over the past one years suggests it may have to lean into acquisitions to drive its expansion
-
Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 6.3 percentage points
-
Earnings per share have contracted by 14.1% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Surgery Partners (SGRY)
One-Month Return: -7.4%
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Are We Cautious About SGRY?
-
Disappointing unit sales over the past two years imply it may need to invest in improvements to get back on track
-
Poor free cash flow margin of 4.6% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
-
6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Alight (ALIT)
One-Month Return: -12.1%
Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE:ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.
Why Are We Out on ALIT?
-
Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.1% annually over the last five years
-
Earnings per share have contracted by 5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
-
Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Stocks We Like More
The market’s up big this year – but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking – and paying a fraction of the price.
The market’s up big this year – but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking – and paying a fraction of the price.