Investors may enjoy the stock market’s strength as the Dow Jones and S&P 500 (SPY) trade near all-time highs. However, the market is quick to punish companies that report signs of a slowdown. Investors have three stocks to consider avoiding: Dropbox (DBX), Roku (ROKU), and Cisco Systems (CSCO).
Dropbox lost 22.93% on Feb. 16 after the cloud storage provider reported ARR – annual recurring revenue – of $2.523 billion. This is up by only 0.3% Y/Y, a weak figure that spooked investors. Before that, its ARR for Q1, Q2, and Q3 were 7.8%, 7.2%, and 3.8%, respectively.
The file-sharing supplier has a weakening moat. Microsoft (MSFT) ramped up advertising for OneDrive, offering users gigabytes of free storage before charging a subscription fee. Conversely, users on the free Dropbox plan have limited storage and usage on a maximum of three devices.
Roku lost one-quarter of its value on worries that its streaming services distribution revenue growth stalls. Some analysts have a $100 price target, which appears far too optimistic.
In telecom networking, Cisco is down a modest 4.1% YTD. Its security unit grew by 3%. Its Observability Platform grew by 16% Y/Y. Growth investors are better off buying CrowdStrike (CRWD), which is up 29% YTD, or Palo Alto Networks (PANW). The latter firms have stronger long-term growth prospects in the cybersecurity segment.
