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Growth is a hallmark of all great companies, but the laws of gravity eventually take hold. Those who rode the COVID boom and ensuing tech selloff in 2022 will surely remember that the market’s punishment can be swift and severe when trajectories fall.

The risks that can come from buying these assets is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here is one growth stock expanding its competitive advantage and two whose momentum may slow.

Two Growth Stocks to Sell:

Paylocity (PCTY)

One-Year Revenue Growth: +14.6%

Founded by payroll software veteran Steve Sarowitz in 1997, Paylocity (NASDAQ:PCTY) is a provider of payroll and HR software for small and medium-sized enterprises.

Why Is PCTY Not Exciting?

1. Competitive market dynamics make it difficult to retain customers, leading to a weak 92% net revenue retention rate

2. Estimated sales growth of 8.7% for the next 12 months implies demand will slow from its three-year trend

3. Gross margin of 68.8% is below its competitors, leaving less money to invest in areas like marketing and R&D

Paylocity is trading at $183.50 per share, or 6.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PCTY.

Concentrix (CNXC)

One-Year Revenue Growth: +21.7%

With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ:CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.

Why Do We Think Twice About CNXC?

1. Estimated sales growth of 1% for the next 12 months implies demand will slow from its two-year trend

2. Annual earnings per share growth of 2.5% underperformed its revenue over the last two years, showing its incremental sales were less profitable

3. Underwhelming 7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

Concentrix’s stock price of $50.39 implies a valuation ratio of 4.3x forward P/E. Check out our free in-depth research report to learn more about why CNXC doesn’t pass our bar.

One Growth Stock to Watch:

Snowflake (SNOW)

One-Year Revenue Growth: +29.2%

Founded in 2013 by three French engineers who spent decades working for Oracle, Snowflake (NYSE:SNOW) provides a data warehouse-as-a-service in the cloud that allows companies to store large amounts of data and analyze it in real time.

Why Do We Watch SNOW?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 20.1% over the last year

2. Customers use its software daily and increase their spending every year, as seen in its 127% net revenue retention rate

3. Expected revenue growth of 23.3% for the next year suggests its market share will rise