Growth is a hallmark of all great companies, but the laws of gravity eventually take hold. Those who rode the COVID boom and ensuing tech selloff in 2022 will surely remember that the market’s punishment can be swift and severe when trajectories fall.
The risks that can come from buying these assets are precisely why we started StockStory — to isolate the long-term winners from the losers so you can invest with confidence. On that note, here is one growth stock expanding its competitive advantage and two whose momentum may slow.
Two Growth Stocks to Sell:
Sphere Entertainment (SPHR)
One-Year Revenue Growth: +23.4%
Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE:SPHR) hosts live entertainment events and distributes content across various media platforms.
Why Do We Avoid SPHR?
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10.8% annual revenue growth over the last five years was slower than its consumer discretionary peers
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Projected 2.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
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Negative earnings profile makes it challenging to secure favorable financing terms from lenders
At $173.34 per share, Sphere Entertainment trades at 19.7x forward EV-to-EBITDA. To fully understand why you should be careful with SPHR, check out our full research report (it’s free).
SoundHound AI (SOUN)
One-Year Revenue Growth: +54.6%
Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.
Why Are We Cautious About SOUN?
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Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
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Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
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Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
SoundHound AI is trading at $7.39 per share, or 12.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SOUN.
One Growth Stock to Buy:
DexCom (DXCM)
One-Year Revenue Growth: +15.5%
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ:DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.