The stocks in this article are all trading near their 52-week highs. This strength often reflects positive developments such as new product launches, favorable industry trends, or improved financial performance.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. Keeping that in mind, here are three stocks that are likely overheated and some you should look into instead.
VSE Corporation (VSEC)
One-Month Return: +11.2%
With roots dating back to 1959 and a strategic focus on extending the life of transportation assets, VSE Corporation (NASDAQ: VSEC) provides aftermarket parts distribution and maintenance, repair, and overhaul services for aircraft and vehicle fleets in commercial and government markets.
Why Do We Think Twice About VSEC?
- Gross margin of 12.3% reflects its high production costs
- Cash burn makes us question whether it can achieve sustainable long-term growth
- ROIC of 5% reflects management’s challenges in identifying attractive investment opportunities
At $130.19 per share, VSE Corporation trades at 35.5x forward P/E. If you’re considering VSEC for your portfolio, see our FREE research report to learn more.
RTX (RTX)
One-Month Return: +5.9%
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
Why Are We Hesitant About RTX?
- Estimated sales growth of 4% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share were flat while its revenue grew over the last five years, partly because it issued new shares
- Underwhelming 2.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
RTX is trading at $136.23 per share, or 21.9x forward P/E. To fully understand why you should be careful with RTX, check out our full research report (it’s free).
iRhythm (IRTC)
One-Month Return: +3.6%
Pioneering the shift from bulky, short-term heart monitors to sleek, wire-free patches, iRhythm Technologies (NASDAQ: IRTC) provides wearable cardiac monitoring devices and AI-powered analysis services that help physicians detect and diagnose heart rhythm disorders.
Why Does IRTC Worry Us?
- Issuance of new shares over the last five years caused its earnings per share to fall by 5.6% annually while its revenue grew
- Negative free cash flow raises questions about the return timeline for its investments
- 124× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
iRhythm’s stock price of $140.65 implies a valuation ratio of 78.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than IRTC.
High-Quality Stocks for All Market Conditions
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 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 183% over the last five years (as of March 31st 2025).
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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
