Growth is oxygen. But when it evaporates, the consequences can be severe - ask anyone who bought Cisco in the Dot-Com Bubble or newer investors who lived through the 2020 to 2022 COVID cycle.

Deciphering which businesses can sustain their high growth rates is a challenge for even the most seasoned professionals, which is why we started StockStory. That said, here is one growth stock expanding its competitive advantage and two that could be down big.

Two Growth Stocks to Sell:

Guardant Health (GH)

One-Year Revenue Growth: +30.4%

Pioneering the field of "liquid biopsy" with technology that can identify cancer-specific genetic mutations from a simple blood draw, Guardant Health (NASDAQ: GH) develops blood tests that detect and monitor cancer by analyzing tumor DNA in the bloodstream, helping doctors make treatment decisions without invasive biopsies.

Why Do We Think Twice About GH?

1. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 18.5% annually
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes

Guardant Health’s stock price of $102.33 implies a valuation ratio of 11x forward price-to-sales. To fully understand why you should be careful with GH, check out our full research report (it’s free for active Edge members).

Walker & Dunlop (WD)

One-Year Revenue Growth: +16%

Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE: WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.

Why Are We Hesitant About WD?

1. Loans are facing significant end-market challenges during this cycle as net interest income has declined by 43.8% annually over the last five years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.7% annually
3. Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 4.4% annually over the last five years

Walker & Dunlop is trading at $60.15 per share, or 1.1x forward P/B. If you’re considering WD for your portfolio, see our FREE research report to learn more.

One Growth Stock to Watch:

Cadence Design Systems (CDNS)

One-Year Revenue Growth: +19.7%

Powering the chips behind everything from smartphones to AI accelerators for over 35 years, Cadence Design Systems (NASDAQ: CDNS) provides essential computational software, hardware, and intellectual property used by engineers to design and verify advanced electronic systems and semiconductors.

Why Do We Like CDNS?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 21.8% over the last year
2. Software is difficult to replicate at scale and results in a best-in-class gross margin of 86.6%
3. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently

At $312.64 per share, Cadence Design Systems trades at 14.9x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

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