Exciting developments are taking place for the stocks in this article. They’ve all surged ahead of the broader market over the last month as catalysts such as new products and positive media coverage have propelled their returns.

But not every company with momentum is a long-term winner, and plenty of investors have lost money betting on short-term fads. Keeping that in mind, here are three stocks that are likely overheated and some you should look into instead.

Etsy (ETSY)

One-Month Return: +1.9%

Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NYSE: ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.

Why Are We Wary of ETSY?

1. Active Buyers have declined by 1.4% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
2. Estimated sales decline of 5.2% for the next 12 months implies a challenging demand environment
3. Performance over the past three years shows its incremental sales were less profitable, as its 1.4% annual earnings per share growth trailed its revenue gains

Etsy’s stock price of $53.38 implies a valuation ratio of 10.4x forward EV/EBITDA. Check out our free in-depth research report to learn more about why ETSY doesn’t pass our bar.

Petco (WOOF)

One-Month Return: +19.3%

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ: WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Do We Think WOOF Will Underperform?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Issuance of new shares over the last three years caused its earnings per share to fall by 38.6% annually
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $2.93 per share, Petco trades at 13.1x forward P/E. Dive into our free research report to see why there are better opportunities than WOOF.

Baldwin Insurance Group (BWIN)

One-Month Return: +30.3%

Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ: BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.

Why Are We Cautious About BWIN?

1. Free cash flow margin shrank by 10.7 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
2. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Baldwin Insurance Group is trading at $21.59 per share, or 10.6x forward P/E. To fully understand why you should be careful with BWIN, check out our full research report (it’s free).

Stocks We Like More

ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.

Find out which 5 stocks it's flagging for this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.