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Growth boosts valuation multiples, but it doesn’t always last forever. Companies that cannot maintain it are often penalized with large declines in market value, a lesson ingrained in investors who lost money in tech stocks during 2022.

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. On that note, here are three growth stocks whose momentum may slow and some other opportunities you should look into instead.

Guidewire (GWRE)

One-Year Revenue Growth: +17.2%

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 Cautious About GWRE?

1. Revenue increased by 12.4% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds

2. Gross margin of 61.4% is below its competitors, leaving less money to invest in areas like marketing and R&D

3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Guidewire is trading at $215.17 per share, or 14.4x forward price-to-sales. To fully understand why you should be careful with GWRE, check out our full research report (it’s free).

GXO Logistics (GXO)

One-Year Revenue Growth: +23.4%

With notable customers such as Nike and Apple, GXO (NYSE:GXO) manages outsourced supply chains and warehousing for various companies.

Why Does GXO Fall Short?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth

2. Earnings per share fell by 2.2% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable

3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

GXO Logistics’s stock price of $41.30 implies a valuation ratio of 15.7x forward P/E. If you’re considering GXO for your portfolio, see our FREE research report to learn more.

PAR Technology (PAR)

One-Year Revenue Growth: +37.9%

Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE:PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.

Why Does PAR Worry Us?

1. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 6.3 percentage points

2. Negative free cash flow raises questions about the return timeline for its investments

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders