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.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here is one stock with lasting competitive advantages and two best left ignored.
Two Momentum Stocks to Sell:
Health Catalyst (HCAT)
One-Month Return: +8.6%
Founded by healthcare professionals Tom Burton and Steve Barlow in 2008, Health Catalyst (NASDAQ:HCAT) provides data and analytics technology to healthcare organizations, enabling them to improve care and lower costs.
Why Are We Cautious About HCAT?
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Muted 7% annual revenue growth over the last three years shows its demand lagged behind its software peers
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Gross margin of 45.9% reflects its high servicing costs
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Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
Health Catalyst’s stock price of $4.17 implies a valuation ratio of 0.8x forward price-to-sales. Check out our free in-depth research report to learn more about why HCAT doesn’t pass our bar.
Peloton (PTON)
One-Month Return: +7.5%
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Do We Steer Clear of PTON?
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Number of connected fitness subscribers has disappointed over the past two years, indicating weak demand for its offerings
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Sales are projected to tank by 5.1% over the next 12 months as its demand continues evaporating
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Poor expense management has led to operating losses
At $6.13 per share, Peloton trades at 7.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than PTON.
One Momentum Stock to Buy:
Magnite (MGNI)
One-Month Return: +60%
Born from the 2020 merger of Rubicon Project and Telaria, Magnite (NASDAQ:MGNI) operates the world's largest independent sell-side advertising platform that automates the buying and selling of digital advertising inventory across all channels and formats.
Why Should You Buy MGNI?
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Annual revenue growth of 33.3% over the last five years was superb and indicates its market share increased during this cycle
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Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
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Rising returns on capital show the company is starting to reap the benefits of its past investments