Rock-bottom prices don't always mean rock-bottom businesses. The stocks we're examining today have all touched their 52-week lows, creating a classic investor's dilemma: bargain opportunity or value trap?
While market timing can be an extremely profitable strategy, it has burned many investors and requires rigorous analysis - something we specialize in at StockStory. That said, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
Varonis (VRNS)
One-Month Return: +1.3%
Founded by a duo of former Israeli Defense Forces cyber warfare engineers, Varonis (NASDAQ: VRNS) offers software-as-service that helps customers protect data from cyber threats and gain visibility into how enterprise data is being used.
Why Are We Wary of VRNS?
- 12.2% annual revenue growth over the last three years was slower than its software peers
- Historical operating losses point to an inefficient cost structure
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $41.98 per share, Varonis trades at 7.5x forward price-to-sales. Check out our free in-depth research report to learn more about why VRNS doesn’t pass our bar.
MSC Industrial (MSM)
One-Month Return: +1%
Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE: MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors
Why Do We Pass on MSM?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.5% annually
MSC Industrial’s stock price of $78.24 implies a valuation ratio of 20.3x forward price-to-earnings. To fully understand why you should be careful with MSM, check out our full research report (it’s free).
CDW (CDW)
One-Month Return: -11%
Serving as a crucial bridge between technology manufacturers and end users since 1984, CDW (NASDAQ: CDW) is a multi-brand provider of information technology solutions that helps businesses and public sector organizations select, implement, and manage hardware, software, and IT services.
Why Should You Dump CDW?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.7%
- Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
CDW is trading at $151.80 per share, or 15.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CDW.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
