A stock with low volatility can be reassuring, but it doesn’t always mean strong long-term performance. Investors who prioritize stability may miss out on higher-reward opportunities elsewhere.
Choosing the wrong investments can cause you to fall behind, which is why we started StockStory - to separate the winners from the losers. Keeping that in mind, here are three low-volatility stocks to avoid and some better opportunities instead.
Dollar Tree (DLTR)
Rolling One-Year Beta: 0.70
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ: DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Do We Think Twice About DLTR?
- Annual sales growth of 1.1% over the last six years lagged behind its consumer retail peers as its large revenue base made it difficult to generate incremental demand
- Forecasted revenue decline of 21.7% for the upcoming 12 months implies demand will fall off a cliff
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Dollar Tree is trading at $115.50 per share, or 21.4x forward P/E. Read our free research report to see why you should think twice about including DLTR in your portfolio.
Playa Hotels & Resorts (PLYA)
Rolling One-Year Beta: 0.48
Sporting a roster of beachfront properties, Playa Hotels & Resorts (NASDAQ: PLYA) is an owner, operator, and developer of all-inclusive resorts in prime vacation destinations.
Why Does PLYA Worry Us?
- Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
- Estimated sales growth of 7.6% for the next 12 months is soft and implies weaker demand
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $13.48 per share, Playa Hotels & Resorts trades at 21.7x forward P/E. If you’re considering PLYA for your portfolio, see our FREE research report to learn more.
Encompass Health (EHC)
Rolling One-Year Beta: 0.63
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Are We Hesitant About EHC?
- Day-to-day expenses have swelled relative to revenue over the last two years as its adjusted operating margin fell by 4 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.2 percentage points
Encompass Health’s stock price of $107.17 implies a valuation ratio of 21.8x forward P/E. To fully understand why you should be careful with EHC, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
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