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.
The risks that can come from buying these assets is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three growth stocks climbing an uphill battle and some other opportunities you should consider instead.
Elastic (ESTC)
One-Year Revenue Growth: +17%
Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE:ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.
Why Are We Hesitant About ESTC?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.9% average billings growth over the last year was weak
- Estimated sales growth of 13.7% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Elastic is trading at $57.15 per share, or 3.5x forward price-to-sales. Check out our free in-depth research report to learn more about why ESTC doesn’t pass our bar.
First Watch (FWRG)
One-Year Revenue Growth: +17.3%
Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ:FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.
Why Do We Think Twice About FWRG?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Long-term business health is up for debate as its cash burn has increased over the last year
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
First Watch’s stock price of $17.03 implies a valuation ratio of 57.6x forward P/E. Dive into our free research report to see why there are better opportunities than FWRG.
Array (ARRY)
One-Year Revenue Growth: +35.8%
Going public in October 2020, Array (NASDAQ:ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.
Why Do We Steer Clear of ARRY?
- Annual sales declines of 9.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have dipped by 9.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $10.99 per share, Array trades at 16.3x forward P/E. If you’re considering ARRY for your portfolio, see our FREE research report to learn more.
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