A highly volatile stock can deliver big gains - or just as easily wipe out a portfolio if things go south. While some investors embrace risk, mistakes can be costly for those who aren’t prepared.

At StockStory, our job is to help you avoid costly mistakes and stay on the right side of the trade. Keeping that in mind, here are three volatile stocks best left to the gamblers and some better opportunities instead.

Genesco (GCO)

Rolling One-Year Beta: 2.11

Spanning a broad range of styles, brands, and prices, Genesco (NYSE: GCO) sells footwear, apparel, and accessories through multiple brands and banners.

Why Is GCO Risky?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Genesco is trading at $29.20 per share, or 15.7x forward P/E. Check out our free in-depth research report to learn more about why GCO doesn’t pass our bar.

Frontdoor (FTDR)

Rolling One-Year Beta: 1.21

Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ: FTDR) is a provider of home warranty and service plans.

Why Is FTDR Not Exciting?

1. Sales trends were unexciting over the last five years as its 6.8% annual growth was below the typical consumer discretionary company
2. Number of home service plans has disappointed over the past two years, indicating weak demand for its offerings
3. Estimated sales growth of 8.5% for the next 12 months is soft and implies weaker demand

Frontdoor’s stock price of $67.14 implies a valuation ratio of 18.6x forward P/E. If you’re considering FTDR for your portfolio, see our FREE research report to learn more.

ScanSource (SCSC)

Rolling One-Year Beta: 1.46

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ: SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Should You Dump SCSC?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 11.4% annually over the last two years
2. Earnings per share have dipped by 3.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $42.72 per share, ScanSource trades at 11.3x forward P/E. To fully understand why you should be careful with SCSC, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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