Successful investing is as much about avoiding risky companies as it is picking good ones.
Here are 3 companies I'm avoiding today:
Westpac Banking Corp (ASX: WBC)
I have a couple of concerns with Westpac. First, is the company's exposure to the property market – around 50% of its mortgages are interest-only loans to investors. Second, I'm concerned about the bullishness of the management team that decided that 50% interest-only was a sound investment. Third, I think that the forced transition of borrowers to principle + interest repayments could potentially show up problems with these loans, as monthly repayments rise.
If I had to own a bank, it wouldn't be this one.
Link Administration Holdings Ltd (ASX: LNK)
I think that Link is both overpriced and overrated when it comes to its growth prospects. It enjoys high levels of recurring revenue, but is a low margin business and its primary source of growth appears to be by cost cutting and acquisition, not through growing its customer numbers and the amount of business that it does with those customers.
I could be wrong about Link, but I'm still avoiding it.
Ardent Leisure Group (ASX: AAD)
I think that Ardent is also overpriced, and it lacks the competitive position and recurring revenue that Link enjoys – it trades them for better growth prospects. However, recent declines in same-store sales at the company's Main Event venues are concerning, especially now that Main Event is the company's core business. Ardent has a strong balance sheet and if Main Event is everything it's cracked up to be, the company could be much larger in a decade's time.
However, I think investors will be underwhelmed with its performance in the near term. I'm waiting for more evidence before considering a purchase.
