In This Article:
The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to new product launches, positive news, or even a dedicated social media following.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. All that said, here are three overhyped stocks that may correct and some you should consider instead.
Couchbase (BASE)
One-Month Return: +26.9%
Formed in 2011 with the merger of Membase and CouchOne, Couchbase (NASDAQ:BASE) is a database-as-a-service platform that allows enterprises to store large volumes of semi-structured data.
Why Does BASE Fall Short?
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19.2% annual revenue growth over the last three years was slower than its software peers
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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
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Historical operating losses point to an inefficient cost structure
Couchbase’s stock price of $18.62 implies a valuation ratio of 4.3x forward price-to-sales. Check out our free in-depth research report to learn more about why BASE doesn’t pass our bar.
Alta (ALTG)
One-Month Return: +32.4%
Founded in 1984, Alta Equipment Group (NYSE:ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Do We Think ALTG Will Underperform?
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5.8% annual revenue growth over the last two years was slower than its industrials peers
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Negative free cash flow raises questions about the return timeline for its investments
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Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Alta is trading at $5.43 per share, or 1x forward EV-to-EBITDA. If you’re considering ALTG for your portfolio, see our FREE research report to learn more.
Enpro (NPO)
One-Month Return: +34.4%
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Are We Cautious About NPO?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last five years
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Earnings per share have dipped by 2.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
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Underwhelming 6.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $184.70 per share, Enpro trades at 23.9x forward P/E. Dive into our free research report to see why there are better opportunities than NPO.