It is prudent to offload certain stocks that do not have enough potential and are weighed down by tough market conditions. Identifying such stocks on a regular basis and getting rid of them is one of the keys to successful investing.
Mobileye N.V. MBLY seems to be one such stock, which investors need to dump for now if they are looking to avoid long-term losses. The stock faces several headwinds at the moment and discarding it at the right time is vital to shielding one’s portfolio from massive losses.
Here’s Why Mobileye Should be Avoided
Mobileye carries a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.
Also, analysts have become increasingly bearish on the stock over the past couple of months with estimates moving south. With seven out of nine estimates moving down and no upward revision in the past 60 days, the Zacks Consensus Estimate for fiscal 2016 earnings declined from 47 cents to 44 cents.
Further, Mobileye’s stock price history reveals that the company has disappointed for long. In fact, over the last six months, shares of Mobileye have shown a negative return of 12.3%, underperforming the Zacks Categorized Electronics-Miscellaneous Components industry, which has showcased an increase of 6.8%.
Mobileye also delivered negative earnings surprises in two out of the last four quarters with an average miss of 2.4%.
Mobileye’s unimpressive run may continue as the company is currently trading at a higher price/earnings (P/E) multiple than the industry average. Therefore, we believe that Mobileye with its higher forward P/E valuation of 57.4x compared with the industry average of 17.3x may be a poor bet.
Adding to the woes the stock carries a VGM Score of “D.” We note a weak Style Score robs the stock of much of its upside potential over the next 30 days. So if a stock you’re in slips to Style Score of D or F, it’s better to sell that stock and switch to one with a score of A or B.
Mobileye provides essential components for the emerging advanced driver assistance systems (ADAS) market. Rising competition from ZAGG Inc. ZAGG and CalAmp Corp. CAMP remains concern.
It is worth noting that Mobileye’s earrings of 11 cents in the last reported quarter (third-quarter of 2016) missed the Zacks Consensus Estimates by a penny.
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Mobileye shares until the Zacks Rank, VGM score and estimates improve.
Stock to Consider
A better-ranked stock in the technology sector is Marvell Technology Group Ltd. MRVL, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Marvell has long-term expected earnings per share growth rate of 12.33%.
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