Great things are happening to the stocks in this article. They’re all outperforming the market over the last month because of positive catalysts such as a new product line, constructive news flow, or even a loyal Reddit fanbase.
However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. Keeping that in mind, here is one stock with the fundamentals to back up its performance and two best left ignored.
Two Momentum Stocks to Sell:
Revolve (RVLV)
One-Month Return: +36.2%
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Should You Dump RVLV?
- May need to improve its platform and marketing strategy as its 5.7% average growth in active customers underwhelmed
- Demand has been weak recently as it posted disappointing growth in its average revenue per buyer and struggled to expand its platform
- Earnings per share have contracted by 10.5% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Revolve’s stock price of $28.11 implies a valuation ratio of 19.5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why RVLV doesn’t pass our bar.
Dollar Tree (DLTR)
One-Month Return: +25.9%
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ: DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Do We Think Twice About DLTR?
- Products have few die-hard fans as sales have declined by 11.9% annually over the last three years
- Conservative approach to adding new stores shows management is focused on improving existing location performance
- ROIC of 9.7% reflects management’s challenges in identifying attractive investment opportunities
Dollar Tree is trading at $130.50 per share, or 20.6x forward P/E. Dive into our free research report to see why there are better opportunities than DLTR.
One Momentum Stock to Watch:
SmartRent (SMRT)
One-Month Return: +45.8%
Founded by an employee at a real estate rental company, SmartRent (NYSE: SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.
Why Do We Watch SMRT?
- ARR trends over the past two years show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Earnings per share grew by 24.1% annually over the last three years and trumped its peers
- Improving returns on capital suggest its past investments are beginning to deliver value
At $2.10 per share, SmartRent trades at 99.8x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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