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.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here is one stock with the fundamentals to back up its performance and two that may correct.
Two Momentum Stocks to Sell:
Trex (TREX)
One-Month Return: +19.5%
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE: TREX) makes wood-alternative decking, railing, and patio furniture.
Why Do We Steer Clear of TREX?
- Sales tumbled by 2.1% annually over the last two years, showing market trends are working against it during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Trex’s stock price of $48.49 implies a valuation ratio of 29x forward P/E. Read our free research report to see why you should think twice about including TREX in your portfolio.
Collegium Pharmaceutical (COLL)
One-Month Return: +23.8%
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Does COLL Give Us Pause?
- Smaller revenue base of $796.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 6.4 percentage points
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
At $38.47 per share, Collegium Pharmaceutical trades at 4.6x forward P/E. To fully understand why you should be careful with COLL, check out our full research report (it’s free).
One Momentum Stock to Buy:
Alignment Healthcare (ALHC)
One-Month Return: +66.7%
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ: ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Will ALHC Beat the Market?
- Impressive 45.4% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings growth has trumped its peers over the last four years as its EPS has compounded at 28.5% annually
- Free cash flow margin increased by 11 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Alignment Healthcare is trading at $23.75 per share, or 27.6x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
