3 Volatile Stocks We Approach with Caution

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.

Navigating these stocks isn’t easy, which is why StockStory helps you find Comfort In Chaos. Keeping that in mind, here are three volatile stocks to avoid and some better opportunities instead.

Opendoor (OPEN)

Rolling One-Year Beta: 2.97

Founded by real estate guru Eric Wu, Opendoor (NASDAQ:OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.

Why Is OPEN Risky?

1. Sluggish trends in its homes sold suggest customers aren’t adopting its solutions as quickly as the company hoped

2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.4% for the last two years

3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $2.31 per share, Opendoor trades at 142.6x forward EV-to-EBITDA. To fully understand why you should be careful with OPEN, check out our full research report (it’s free).

First Watch (FWRG)

Rolling One-Year Beta: 1.88

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ:FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Why Does FWRG Worry Us?

1. Cash-burning history makes us doubt the long-term viability of its business model

2. Underwhelming 4.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

First Watch is trading at $12.24 per share, or 59x forward P/E. If you’re considering FWRG for your portfolio, see our FREE research report to learn more.

Carter’s (CRI)

Rolling One-Year Beta: 1.24

Rumored to sell more than 10 products for every child born in the United States, Carter’s (NYSE:CRI) is an American designer and marketer of children’s apparel.

Why Are We Bearish on CRI?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience

2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.9 percentage points over the next year

3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value