Identifying a stock to avoid is often easier than pinpointing one to invest in, especially when clear warning signs are present. Declining sales, falling earnings, and underperformance during a strong market year are key indicators that suggest a stock is worth steering clear of.

Unfortunately, Academy Sports and Outdoors (ASO) checks all these boxes, contributing to a bleak near-term outlook. Not only has the stock underperformed the broader market, but it is also lagging behind its peers in the retail sector. Retail is a notoriously competitive industry, and when pitted against giants like Amazon and Walmart, the odds are heavily stacked against smaller players like ASO.

The Zacks Rank further underscores this weak setup. Falling earnings estimates remain one of the most reliable indicators of poor profit potential, and in the case of Academy Sports and Outdoors, this trend reinforces the case for caution.

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Academy Sports and Outdoors Earnings Downgrades

As mentioned, Academy Sports and Outdoors has been experiencing downward revisions in earnings estimates, resulting in a Zacks Rank #5 (Strong Sell) rating. Analysts have unanimously lowered their earnings forecasts across timeframes, with earnings this year and next year falling by more than 4%.

With trailing sales and earnings both falling it is no surprise that analysts have had to downgrade the outlook, and they have been spot on with their downward expectations. Over the last four quarterly earnings meetings, ASO has missed estimates three times and the last report it missed by 23.4%.

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ASO Stock Technical Perspective

The stock chart for Academy Sports and Outdoors provides valuable insights into the company's potential trajectory. Over the past two years, the stock has traded within a broad and volatile range, which has recently started to narrow.

If the stock approaches the upper resistance level and reverses lower, it may continue trading within this range for an extended period or even trend toward the lower bound. However, a breakout above the upper resistance could signal a positive shift for the company. For this to be meaningful, though, it should coincide with notable improvements in the company's fundamentals.

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Should Investors Avoid ASO Stock?

Academy Sports and Outdoors is a company that clearly shows stagnation and the stock performance reflects that reality. Based on the multitude of factors shared here, it is clear that investors should avoid the stock at current levels.

However, this does not mean that ASO will forever be a poor stock. If the company can reignite sales growth and analysts begin to raise earnings estimates, maybe this stock can stage a comeback. But until that happens, investors should be hesitant to get involved and may want to seek opportunities elsewhere in the market.

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