Volatility cuts both ways - while it creates opportunities, it also increases risk, making sharp declines just as likely as big gains. This unpredictability can shake out even the most experienced investors.
These stocks can be a rollercoaster, and StockStory is here to guide you through the ups and downs. Keeping that in mind, here are three volatile stocks to steer clear of and a few better alternatives.
Elastic (ESTC)
Rolling One-Year Beta: 1.68
Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE: ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.
Why Does ESTC Fall Short?
- Persistent operating losses suggest the business manages its expenses poorly
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.3 percentage points over the next year
Elastic’s stock price of $92.23 implies a valuation ratio of 5.9x forward price-to-sales. Check out our free in-depth research report to learn more about why ESTC doesn’t pass our bar.
DigitalOcean (DOCN)
Rolling One-Year Beta: 1.56
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Why Are We Cautious About DOCN?
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 98.2% net revenue retention rate
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 59.9%, one of the worst among software companies
At $28.11 per share, DigitalOcean trades at 3.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DOCN.
Cars.com (CARS)
Rolling One-Year Beta: 1.08
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Is CARS Not Exciting?
- Market opportunities are plateauing as its dealer customers were flat over the last two years
- Estimated sales growth of 1.5% for the next 12 months implies demand will slow from its three-year trend
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 1.9% annually
Cars.com is trading at $10.05 per share, or 3x forward EV/EBITDA. If you’re considering CARS for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
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