While this stock has been much-hyped by the Motley Fool, Sierra Wireless has been unable to grow profits or earn positive returns on capital over any meaningful amount of time and the stock’s valuation already reflects alarmingly high expectations for future profit growth.
In truth, neither AMZN’s $5.5 billion of operating cash flow nor the $1 billion in free cash flow that bulls claim reflect the actual economics of the business.
Dwindling cash reserves and increased competition are only the surface problems for this company. Throw in turmoil in the boardroom and we have a recipe for disaster.
Investors seem to be under the mistaken conclusion that this is a safe value stock since it sells durable consumer goods, but that does not appear to be the case. NWL is a dangerous, overvalued stock that investors should avoid.
All of the small cap styles earn our Dangerous rating, but Small Cap Blend Investors land in the Danger Zone due to the disproportionately large allocation to the worst funds in the style.
First Trust Utilities AlphaDEX Fund ETF (FXU) is in the Danger Zone this week due to its poor holdings. FXU might not have any obvious red flags on the surface, but a look at its holdings reveals a number of stocks with the potential to blow up, including some recent features in the Danger Zone.
Companies usually pitch these alternative metrics as “supplementary” data to help investors get a “better” view of the profitability of the business. Instead, we see red flags, not a better view.