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. Keeping that in mind, here is one stock with lasting competitive advantages and two not so much.
Two Momentum Stocks to Sell:
Stitch Fix (SFIX)
One-Month Return: +34.8%
One of the original subscription box companies, Stitch Fix (NASDAQ:SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Is SFIX Risky?
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Number of active clients has disappointed over the past two years, indicating weak demand for its offerings
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Poor expense management has led to operating losses
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Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 23.9% annually, worse than its revenue
At $4.11 per share, Stitch Fix trades at 14.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SFIX.
Envista (NVST)
One-Month Return: +9.7%
Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.
Why Should You Sell NVST?
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Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
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Earnings per share fell by 13.9% annually over the last five years while its revenue was flat, showing each sale was less profitable
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Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Envista’s stock price of $16.64 implies a valuation ratio of 16.3x forward P/E. Check out our free in-depth research report to learn more about why NVST doesn’t pass our bar.
One Momentum Stock to Watch:
Freshworks (FRSH)
One-Month Return: +17.6%
Founded in Chennai, India in 2010 with the idea of creating a “fresh” helpdesk product, Freshworks (NASDAQ: FRSH) offers a broad range of software targeted at small and medium-sized businesses.
Why Are We Positive On FRSH?
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Customers view its software as mission-critical to their operations as its ARR has averaged 20.2% growth over the last year
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Superior software functionality and low servicing costs lead to a top-tier gross margin of 84.4%
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Operating margin expanded by 9.2 percentage points over the last year as it scaled and became more efficient