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.
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 whose momentum may slow.
Two Growth Stocks to Sell:
Amkor (AMKR)
One-Year Revenue Growth: +17.9%
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors.
Why Are We Bearish on AMKR?
- 7.9% annual revenue growth over the last two years was slower than its semiconductor peers
- Gross margin of 14.6% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Weak free cash flow margin of 0.8% has deteriorated further over the last five years as its investments increased
Amkor is trading at $47.55 per share, or 18.8x forward P/E. If you’re considering AMKR for your portfolio, see our FREE research report to learn more.
Columbus McKinnon (CMCO)
One-Year Revenue Growth: +55.2%
With 19 different brands across the globe, Columbus McKinnon (NASDAQ:CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Does CMCO Fall Short?
- Earnings per share fell by 14.7% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- 11.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $16.45 per share, Columbus McKinnon trades at 8.9x forward P/E. Dive into our free research report to see why there are better opportunities than CMCO.
One Growth Stock to Watch:
GitLab (GTLB)
One-Year Revenue Growth: +23%
With its all-remote workforce pioneering a new approach to software development, GitLab (NASDAQ:GTLB) provides a single-application DevSecOps platform that helps development, operations, and security teams collaborate to build, secure, and deploy software faster.
Why Could GTLB Be a Winner?
- Market share has increased as its 25.9% annual revenue growth over the last two years was exceptional
- ARR growth averaged 23.3% over the last year, showing customers are willing to take multi-year bets on its software
- Superior software functionality and low servicing costs are reflected in its best-in-class gross margin of 85.9%
GitLab’s stock price of $49.13 implies a valuation ratio of 6.5x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
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