Low-volatility stocks may offer stability, but that often comes at the cost of slower growth and the upside potential of more dynamic companies.
Luckily for you, StockStory helps you navigate which companies are truly worth holding. That said, here are three low-volatility stocks to avoid and some better opportunities instead.
Chemed (CHE)
Rolling One-Year Beta: 0.23
With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Does CHE Worry Us?
- Disappointing billable days over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 4.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Chemed’s stock price of $447.04 implies a valuation ratio of 17.8x forward P/E. To fully understand why you should be careful with CHE, check out our full research report (it’s free).
The Pennant Group (PNTG)
Rolling One-Year Beta: 0.64
Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ:PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.
Why Are We Hesitant About PNTG?
- Smaller revenue base of $842.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Poor free cash flow margin of 1.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Low returns on capital reflect management’s struggle to allocate funds effectively
The Pennant Group is trading at $31.16 per share, or 24.6x forward P/E. Read our free research report to see why you should think twice about including PNTG in your portfolio.
Aramark (ARMK)
Rolling One-Year Beta: 0.65
From serving hot dogs at major league stadiums to managing college dining halls that feed thousands daily, Aramark (NYSE:ARMK) provides food services and facilities management to schools, healthcare facilities, businesses, sports venues, and correctional institutions across 16 countries.
Why Is ARMK Not Exciting?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Performance over the past two years shows each sale was less profitable, as its earnings per share fell by 31% annually
- Low free cash flow margin of 2.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $39.36 per share, Aramark trades at 17.9x forward P/E. If you’re considering ARMK for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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