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 with significant upside potential and two climbing an uphill battle.
Two Growth Stocks to Sell:
Semtech (SMTC)
One-Year Revenue Growth: +15.5%
A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Why Do We Pass on SMTC?
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 16.5 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.6 percentage points
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
Semtech is trading at $73.59 per share, or 36x forward P/E. Dive into our free research report to see why there are better opportunities than SMTC.
CoStar (CSGP)
One-Year Revenue Growth: +18.7%
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Does CSGP Fall Short?
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.7% annually while its revenue grew
- 13.2 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
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $43.73 per share, CoStar trades at 34x forward P/E. Check out our free in-depth research report to learn more about why CSGP doesn’t pass our bar.
One Growth Stock to Buy:
Hims & Hers Health (HIMS)
One-Year Revenue Growth: +59%
Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE: HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.
Why Do We Love HIMS?
- Customer growth averaged 29.5% over the past two years, showing its ability to "land" new contracts and potentially "expand" them later - a powerful one-two punch for sales
- Free cash flow margin grew by 16.9 percentage points over the last five years, giving the company more chips to play with
- Rising returns on capital show the company is starting to reap the benefits of its past investments
Hims & Hers Health’s stock price of $22.96 implies a valuation ratio of 22.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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.
