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Summary

  • ARO has seen steep declines in revenue and profit while producing negative earnings along with negative returns on assets and equity.
  • BBRY has triple digit negative gross profit margin and profit margins, a steady decline in revenue over the past two years, and poor stock performance over that time.
  • XCO has seen a 75% fall in its stock price over the past three years while displaying an inability to grow revenue, profit, and earnings at a steady pace.

Overview

Previously, I wrote Round 9 of this article in which I listed and reviewed three low-priced stocks that I believed should be avoided. The stocks I reviewed in Round 9 were Advanced Micro Devices, Inc. (NYSE:AMD), Flextronics International Ltd. (NASDAQ:FLEX), and STMicroelectronics NV (NYSE:STM).

For Round 10, I will once again focus on stocks that are currently priced at under $10. In determining why I find that these stocks should be avoided, I will be looking at each company's financial performance, current valuation, recent trading activity, dividend policy, earnings and future outlook.

Stock No. 1

Aeropostale, Inc. (NYSE:ARO) is a mall-based, specialty retailer of casual apparel and accessories that primarily targets young adults and children. It designs, sources, markets and sells all of its own merchandise. Aeropostale was founded in 1995 and is headquartered in New York, New York.

Financial Performance

Gross Profit Margin (Quarterly)12.97%
Profit Margin (Quarterly)-10.49%
Return on Assets (NYSE:TTM)-19.83%
Return on Equity-39.31%
Revenue$2.09B
Revenue Quarterly Growth (YOY)-16.01%

Looking at all the negative numbers in the table above, its pretty clear that Aeropostale has had a rough go of it lately. Looking at the chart below you can see that the company's revenue and profit are heading in the wrong direction.

(click to enlarge)

ARO Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

Aeropostale has a current PS ratio of 0.21x and a price-to-book value of 1.57x.

Aeropostale closed Monday at $5.62, marking its 52 week low and $11.48 below its 52 week high. It is trading below both its 50-day moving average of $6.90 and its 200-day moving average of $8.45.

Aeropostale has seen the following price returns:

1-Month Price Return-8.85%
1-Year Price Return-61.30%
3-Year Price Return-76.11%

Earnings

For its latest quarter, Aeropostale reported an adjusted net loss of $0.35 per diluted share.

Dividend

Aeropostale does not pay a dividend.

Company Outlook

The outlook for Aeropostale appears bleak. During its 4th quarter, the company closed 32 of its stores, saw declines in sales, comparable sales, and earnings. While the company is trying to aggressively improve their operations through more planned store closures as well as remodels of existing stores, I don't see anything to suggest it will be enough to stop the bleeding. I recommend avoiding this stock. Even though it has dropped a lot this year, I don't see any signs that it will turn around any time soon.

Stock No. 2

BlackBerry Limited (NASDAQ:BBRY) designs, manufactures, and markets wireless solutions, providing platforms and solutions for access to email, voice, instant messaging, Internet applications, etc. The company was founded in 1984 and is headquartered in Waterloo, Canada.

Financial Performance

Gross Profit Margin (Quarterly)-106.0%
Profit Margin (Quarterly)-368.9%
Return on Assets-44.76%
Return on Equity-65.82%
Revenue$8.52B
Revenue Quarterly Growth (YOY)-56.25%

Looking at the chart below, you can see that BlackBerry has seen drastic drops in revenue and profit over the past couple of years.

(click to enlarge)

BBRY Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

BlackBerry closed Monday at $9.17, $7.65 shy of its 52-week high and $3.73 higher than its 52-week low. The stock is trading below its 200-day moving average of $8.41 but higher than its 50-day moving average of $9.72.

BlackBerry has seen the following price returns:

1-Month Price Return2.06%
1-Year Price Return-39.14%
3-Year Price Return-85.30%

Earnings

For its latest quarter, BlackBerry reported earnings per share of -$0.67. This was the third quarter in a row in which the company reported negative earnings and on March 28th when the company reports its fourth quarter fiscal results, I fully expect it to be the fourth in a row.

Dividend

BlackBerry does not pay a dividend.

Company Outlook

I think the long term outlook for BlackBerry has more potential than the first stock I mentioned, Aeropostale, but I believe that there is very little room left for BlackBerry to move up. The stock has already moved up 23.19% this year and until the company can start to deliver some positive earnings results, I don't think it will move much higher. Unfortunately, I believe we are years away from BlackBerry being able to consistently reported positive earnings and because of this I recommend avoiding this stock at this time.

Stock No. 3

EXCO Resources, Inc. (NYSE:XCO) is an independent oil and natural gas company that engages in the exploration, exploitation, development and production of onshore oil and natural gas properties throughout various areas of the U.S., primarily in Texas, Louisiana, and the Appalachia region. EXCO Resources was founded in 1955 and is based in Dallas, TX.

Financial Performance

Gross Profit Margin (Quarterly)71.55%
Profit Margin (Quarterly)-68.09%
Return on Assets0.97%
Return on Equity8.83%
Revenue$634.31M
Quarterly Revenue Growth (YOY)18.58%

Looking at the chart below, you can see that revenue and profit for EXCO Resources has been up and down in recent years.

(click to enlarge)

XCO Revenue (TTM) data by YCharts

Current Valuation and Recent Trading Activity

EXCO Resources closed Monday at $5.10, $3.80 shy of its 52-week high and just $0.50 higher than its 52-week low. It is trading below both its 200-day moving average of $5.71 and its 50-day moving average of $5.14.

EXCO Resources has seen the following price returns:

1-Month Price Return1.19%
1-Year Price Return-34.19%
3-Year Price Return-75.09%

Earnings

For its latest quarter, EXCO Resources reported adjusted net income of $0.04 per diluted share. Similar, to the company's revenue and profit, earnings has been an up and down pattern. Looking at the chart below, you can see that this has persisted over the past 10 years with the company unable to maintain any kind of positive earnings growth over time.

(click to enlarge)

XCO EPS Diluted (TTM) data by YCharts

Dividend

EXCO Resources currently pays a $0.05 quarterly dividend that yields 3.92%. With a payout ratio around 200%, it is believed by some that it is only a matter of time before this dividend is cut and/or completely suspended.

Company Outlook

While I think EXCO Resources is in better shape than both Aeropostale and BlackBerry, I still think there is too much associated risk to warrant a buy recommendation even with its attractive dividend yield. Due to the uncertainty around a possible cut/suspension in the next quarter or two along with the impact it will have on the stock price, I recommend avoiding this stock for the time being. I do, however, think this is a good stock to keep any eye on throughout the year for positive signs.

Conclusion

Each of the companies reviewed above all have demonstrated an inability to consistently grow revenue, profit, and earnings over long periods of time. Each of the stocks have seen drastic drops in price over the past three years (a time in which the overall market has increased). Only one of the stocks pays a dividend and even that one has a very questionable future in terms of how long that dividend will last.

Because of this I recommend avoiding these stocks at the moment as I feel their upside potential is limited compared to other stocks out there with less associated risk. As always, I recommend individual investors perform their own research before making any investment decisions.

Source: Low-Priced Stocks To Avoid: Round 10