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 to steer clear of and a few better alternatives.

Five Below (FIVE)

Rolling One-Year Beta: 1.67

Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ: FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.

Why Does FIVE Worry Us?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Revenue base of $4.23 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. ROIC of 10.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

Five Below is trading at $146.25 per share, or 31.5x forward P/E. Check out our free in-depth research report to learn more about why FIVE doesn’t pass our bar.

Atkore (ATKR)

Rolling One-Year Beta: 1.22

Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.

Why Is ATKR Risky?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Free cash flow margin shrank by 5.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $60.34 per share, Atkore trades at 9.9x forward P/E. To fully understand why you should be careful with ATKR, check out our full research report (it’s free).

Plexus (PLXS)

Rolling One-Year Beta: 1.27

With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.

Why Are We Wary of PLXS?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.4% annually over the last two years
2. Poor free cash flow margin of 2.7% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Waning returns on capital imply its previous profit engines are losing steam

Plexus’s stock price of $138 implies a valuation ratio of 18.5x forward P/E. Dive into our free research report to see why there are better opportunities than PLXS.

Stocks We Like More

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