In This Article:
Great things are happening to the stocks in this article. They’re all outperforming the market over the last month because of positive catalysts such as a new product line, constructive news flow, or even a loyal Reddit fanbase.
However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. All that said, here is one stock with lasting competitive advantages and two that may correct.
Two Momentum Stocks to Sell:
Guidewire (GWRE)
One-Month Return: +11.1%
Founded by two individuals involved in the development of leading procurement software Ariba, Guidewire (NYSE:GWRE) offers insurance companies a software-as-a-service platform to help sell their products and manage their workflows.
Why Are We Hesitant About GWRE?
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12.4% annual revenue growth over the last three years was slower than its software peers
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Gross margin of 61.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
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Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
Guidewire’s stock price of $213.57 implies a valuation ratio of 14.3x forward price-to-sales. To fully understand why you should be careful with GWRE, check out our full research report (it’s free).
Sealed Air (SEE)
One-Month Return: +15.1%
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
Why Do We Think SEE Will Underperform?
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Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
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Sales were less profitable over the last two years as its earnings per share fell by 7.5% annually, worse than its revenue declines
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Diminishing returns on capital suggest its earlier profit pools are drying up
Sealed Air is trading at $30.57 per share, or 10.1x forward P/E. Dive into our free research report to see why there are better opportunities than SEE.
One Momentum Stock to Buy:
Stride (LRN)
One-Month Return: +15.7%
Formerly known as K12, Stride (NYSE:LRN) is an education technology company providing education solutions through digital platforms.
Why Is LRN a Good Business?
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Rapid growth in enrollments demonstrates strong market adoption
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Free cash flow margin expanded by 6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
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Returns on capital are growing as management capitalizes on its market opportunities