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. Keeping that in mind, here is one growth stock expanding its competitive advantage and two facing an uphill battle.
Two Growth Stocks to Sell:
Marqeta (MQ)
One-Year Revenue Growth: +23.4%
Powering the cards behind innovative fintech services like Block’s Cash App, Marqeta (NASDAQ:MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Does MQ Fall Short?
-
Sales trends were unexciting over the last two years as its 6.3% annual growth was well below the typical software company
-
Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
-
Efficiency has decreased over the last year as its operating margin fell by 5.3 percentage points
Marqeta is trading at $16.97 per share, or 2.4x forward price-to-sales. To fully understand why you should be careful with MQ, check out our full research report (it’s free).
Redwire (RDW)
One-Year Revenue Growth: +33.6%
Based in Jacksonville, Florida, Redwire (NYSE:RDW) is a provider of systems and components used in space infrastructure.
Why Do We Think RDW Will Underperform?
-
Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
-
Free cash flow margin shrank by 14 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
-
Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Redwire’s stock price of $9.36 implies a valuation ratio of 3.8x forward price-to-sales. Read our free research report to see why you should think twice about including RDW in your portfolio, it’s free.
One Growth Stock to Buy:
Construction Partners (ROAD)
One-Year Revenue Growth: +48.8%
Founded in 2001, Construction Partners (NASDAQ:ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Will ROAD Outperform?
-
Impressive 39.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
-
Incremental sales over the last two years have been highly profitable as its earnings per share increased by 46.7% annually, topping its revenue gains
-
Free cash flow margin jumped by 7.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends