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.
Luckily for you, our job at StockStory is to help you avoid short-term fads by pointing you toward high-quality businesses that can generate sustainable long-term growth. Keeping that in mind, here is one growth stock where the best is yet to come and two that could be down big.
Two Growth Stocks to Sell:
Olo (OLO)
One-Year Revenue Growth: +23.3%
Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE: OLO) provides restaurants and food retailers with software to manage food orders and delivery.
Why Do We Think Twice About OLO?
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 54.7%, one of the worst among software companies
- Rapid expansion strategy came at the expense of operating profitability
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Olo’s stock price of $8.69 implies a valuation ratio of 4.4x forward price-to-sales. If you’re considering OLO for your portfolio, see our FREE research report to learn more.
AAR (AIR)
One-Year Revenue Growth: +21.1%
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE: AIR) is a provider of aircraft maintenance services
Why Does AIR Worry Us?
- Sales trends were unexciting over the last five years as its 3.9% annual growth was below the typical industrials company
- Low free cash flow margin of 0.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $60.09 per share, AAR trades at 13.9x forward P/E. Read our free research report to see why you should think twice about including AIR in your portfolio.
One Growth Stock to Watch:
Sprouts (SFM)
One-Year Revenue Growth: +15.5%
Playing on the secular trend of healthier living, Sprouts Farmers Market (NASDAQ: SFM) is a grocery store chain emphasizing natural and organic products.
Why Is SFM Interesting?
- Rapid rollout of new stores to capitalize on market opportunities makes sense given its strong same-store sales performance
- Same-store sales growth averaged 6.6% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Free cash flow margin expanded by 2.1 percentage points over the last year, providing additional flexibility for investments and share buybacks/dividends
Sprouts is trading at $161.75 per share, or 33.3x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
