Growth is a hallmark of all great companies, but the laws of gravity eventually take hold. Those who rode the COVID boom and ensuing tech selloff in 2022 will surely remember that the market’s punishment can be swift and severe when trajectories fall.
Deciphering which businesses can sustain their high growth rates is a challenge for even the most seasoned professionals, which is why we started StockStory. On that note, here is one growth stock with significant upside potential and two that could be down big.
Two Growth Stocks to Sell:
Snap (SNAP)
One-Year Revenue Growth: +16.4%
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Why Are We Wary of SNAP?
- Decision to emphasize platform growth over monetization has contributed to 2.5% annual declines in its average revenue per user
- Expenses have increased as a percentage of revenue over the last few years as its EBITDA margin fell by 5.5 percentage points
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 14.7% annually while its revenue grew
At $8.50 per share, Snap trades at 20.4x forward EV-to-EBITDA. If you’re considering SNAP for your portfolio, see our FREE research report to learn more.
Evolent Health (EVH)
One-Year Revenue Growth: +30.1%
Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.
Why Are We Cautious About EVH?
- Projected sales decline of 18.9% for the next 12 months points to a tough demand environment ahead
- Poor free cash flow margin of 0.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Negative returns on capital show management lost money while trying to expand the business
Evolent Health is trading at $9.50 per share, or 15.3x forward price-to-earnings. To fully understand why you should be careful with EVH, check out our full research report (it’s free).
One Growth Stock to Watch:
Dynatrace (DT)
One-Year Revenue Growth: +19.8%
Founded in Austria in 2005, Dynatrace (NYSE: DT) provides companies with software that allows them to monitor the performance of their full technology stack, from software applications to the infrastructure they run on.
Why Are We Fans of DT?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Prominent and differentiated software culminates in a premier gross margin of 82.2%
- Robust free cash flow margin of 24.9% gives it many options for capital deployment
Dynatrace’s stock price of $44 implies a valuation ratio of 7.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
