First of all, these two stocks have underperformed the S&P 500 index in recent years. While the S&P 500 rose 27% so far this year, 27.3% in the past year and 52.8% in the past 5 years through Dec. 18, these two stocks performed significantly worse.
Second, these stocks either pay no dividend or have a low dividend yield compared to the S&P 500’s yield of 1.79% as of Wednesday.
Third, these companies' balance sheets seem too weak to continue to fund their activities, enveloping their business continuity with uncertainty. According to GuruFocus, YPF Sociedad Anonima and NetScout Systems are in finanical distress zones and have liquidity ratios below acceptable levels.
Lastly, Wall Street sell-side analysts recommend easing any holdings in these stocks.
YPF Sociedad Anonima
Shares of YPF Sociedad Anonima have dropped 20% so far this year, 16% over the last year and 57% over the last five years through Dec. 18. The Argentinian upstream and downstream energy operator has underperformed the S&P 500 by 47%, 43.3% and 110%, respectively.
As of Dec. 18, YPF Sociedad Anonima has a trailing 12-month dividend yield of 1.31%, down 48 basis points from the S&P 500’s yield of 1.79%.
The below chart from GuruFocus indicates that YPF Sociedad Anonima’s current dividend yield is extremely low compared to its historical values, suggesting the stock is not a profitable dividend investment.
Further, the Altman Z-Score is 0.96, which, being less than 1.81, indicates that the company is financially distressed. This warns investors that bankruptcy might be possible in the next two years.
The current ratio of 1.06 is worse than the industry median of 1.25 and below the minimum acceptable level of 2. The company may thus have problems fulfilling its financial obligations that arise within the year, as its cash available on hand and cash generated by operations are too low.
GuruFocus assigned a low rating of 3 out of 10 for the company's financial strength, but a high rating of 8 out of 10 for its profitability.
YPF Sociedad Anonima closed at $10.7 per share on Wednesday for a market capitalization of $4.21 billion.
It is not clear from the Peter Lynch chart whether the stock still trades below its fair value because the trailing 12-month earnings per share turned negative in the third quarter of 2019, when the company posted a loss of about $0.57 per share.
A price-book ratio of 0.59 versus the industry median of 0.95 and a price-sales ratio of 0.5 versus the industry median of 0.89 suggest that this stock is not cheap.
Wall Street analysts issued a moderate sell recommendation rating for YPF Sociedad Anonima and have established an average target price of $9.60, implying a 10.3% downside from Wednesday’s closing price.
Regardless of the sharp depreciation this stock suffered, the 14-day relative strength index of 67 suggests it is still far from oversold levels.
Shares of NetScout Systems have risen by only 2% year to date and fallen 1.5% over the past year and 35.3% over the last five years through Dec. 18. The stock has underperformed the S&P 500 Index by 25.1%, 28.8% and 88.1%, respectively.
NetScout Systems is headquartered in Westford, Massachusetts and provides the digital business services sector with service security and business analytics.
NetScout Systems Inc does not pay a dividend.
The Altman Z-Score of 1.48 warns that the company is in a finanicial distress zone and could possibly go bankrupt within 2 years.
The current ratio of 1.63 is worse than the industry median of 1.75 and below the minimum acceptable level of 2. Thus, NetScout could have problems generating enough cash from current operations to fulfill short-term financial obligations.
GuruFocus assigned a moderate rating of 5 out of 10 for the company's financial strength and a positive rating of 7 out of 10 for its profitability.
Shares of NetScout Systems closed at $24.08 on Wednesday for a market capitalization of $1.8 billion.
According to the Peter Lynch chart, this stock still seems overvalued by the market, even though the earnings line shows the company has incurred a loss per share of 52 cents for the trailing 12 months through the most recent quarter ended on Sept. 30.
Wall Street sell-side analysts issued a moderate sell recommendation rating for shares of NetScout Systems with an average target price of $20, reflecting a 17% downside from Wednesday’s closing share price.
The 14-day relative strength index of 49 suggests the stock is still far from oversold levels.
Disclosure: I have no positions in any securities mentioned.
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