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3 FTSE 100 stocks I’d sell today

When should you sell a stock? I think one good reason is when the risk of disappointment seems greater than the potential rewards on offer. In this piece, I’m going to look at three FTSE 100 stocks I think could disappoint investors over the next couple of years.

Takeaway profit

Online takeaway ordering service Just Eat (LSE: JE) is a leading player in this sector, with operations overseas as well as in the UK. But the firm is without a permanent chief executive, after former boss Peter Plumb departed suddenly in January after just 15 months in the job.

Plumb’s unexpected departure doesn’t fill me with confidence in the outlook for the firm. Indeed, several things worry me about this business.

Competition in this sector is rising fast. Companies such as Uber Eats and Deliveroo are changing the market. I think Just Eat’s profit margins could suffer in this environment.

Indeed, the firm’s profit margins aren’t that high to start with. In 2018, its operating margin was only 14%, which is much lower than dominant online marketplaces such as Rightmove and Auto Trader.

At about 640p, Just Eat shares trade on around 75 times 2019 forecast earnings. Analysts expect profits to double in 2020, but I’m not sure how confident we can be in such bold forecasts. In my view, the current share price carries a significant risk of disappointment.

Unhealthy figures?

Middle East private healthcare group NMC Health (LSE: NMC) operates a network of private hospitals in 19 Gulf countries.

Since floating on the London market in 2012, NMC has grown rapidly, helped by a string of acquisitions. However, this growth has come at a price. At the end of 2018, net debt was about $1.5bn, or 3.1 times earnings before interest, tax, depreciation and amortisation (EBITDA). That’s well above my preferred maximum of 2.0x.

I’m also concerned that, on average, it took the company 96 days to collect payment on customer bills last year. That seems high to me.

Adjusted earnings per share are expected to rise by about 23% in 2019, which may help to justify the stock’s price tag of 18 times forecast earnings. Personally, I think this business looks expensive when its debt burden is factored in. I think there are better choices elsewhere in the healthcare sector.

Fancy a flutter?

When bosses at Paddy Power Betfair decided to rename the group Flutter Entertainment (LSE: FLTR) earlier this year, they were hoping to resolve confusion about the group’s numerous different operating businesses. These include UK bookmakers, online sports betting, and European and US gaming activities.

Flutter’s UK profits took a hit last year, when new regulatory restrictions on fixed-odds betting terminals (FOBTs). Chief executive Peter Jackson is hoping to reignite growth by expanding in the US as sports betting is gradually legalised.

He’s also taking a punt on more lightly-regulated emerging markets — recent deals have included the acquisition of a betting company in Georgia.

In my view, this strategy carries a fair amount of risk. Competition will be intense in the US market and many states have yet to legalise sports betting. Regulation can also change unexpectedly in emerging markets.

Flutter shares currently trade on 19 times 2019 earnings and offer a yield of just 3.3%. That makes them more expensive than most rivals. I don’t think this premium is justified. I’d place my bets elsewhere in this sector.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader, NMC Health, and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.