2 Growth Stocks with All-Star Potential and 1 to Steer Clear Of
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 are two growth stocks with significant upside potential and one whose momentum may slow.
One-Year Revenue Growth: +36.3%
The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.
Why Does STX Worry Us?
Customers postponed purchases of its products and services this cycle as its revenue declined by 3.8% annually over the last five years
Gross margin of 28.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.3% for the last two years
Seagate Technology's stock price of $93.08 implies a valuation ratio of 10.4x forward P/E. Check out our free in-depth research report to learn more about why STX doesn't pass our bar.
One-Year Revenue Growth: +21.1%
Started in 2006 by two MIT grad students, HubSpot (NYSE:HUBS) is a software-as-a-service platform that helps small and medium-sized businesses market themselves, sell, and get found on the internet.
Why Does HUBS Stand Out?
ARR trends over the last year show it's maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
Prominent and differentiated software leads to a best-in-class gross margin of 85%
Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
HubSpot is trading at $632 per share, or 11.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it's free.
One-Year Revenue Growth: +24.1%
Started in 2014 by the team of engineers at LinkedIn who originally built it as an internal tool, Confluent (NASDAQ:CFLT) provides infrastructure software for organizations that makes it easy and fast to collect and move large amounts of data between different systems.
Why Do We Like CFLT?
Winning new contracts that can potentially increase in value as its billings growth has averaged 27.9% over the last year
Platform plays a pivotal role in customer workflows as its net revenue retention rate punches in at 117%
Projected revenue growth of 17.4% for the next 12 months suggests its momentum from the last three years will persist
At $19.80 per share, Confluent trades at 5.6x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it's free.
Market indices reached historic highs following Donald Trump's presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we're leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
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Some Investors May Be Worried About Marine Products' (NYSE:MPX) Returns On Capital
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AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We have to calculate the value of Ameren slightly differently to other stocks because it is a integrated utilities company. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. This often underestimates the value of a stock, but it can still be good as a comparison to competitors. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.9%. We then discount this figure to today's value at a cost of equity of 6.4%. 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Given that we are looking at Ameren as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 6.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. View our latest analysis for Ameren Strength Earnings growth over the past year exceeded the industry. Weakness Earnings growth over the past year is below its 5-year average. Interest payments on debt are not well covered. Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market. Opportunity Annual earnings are forecast to grow for the next 3 years. Good value based on P/E ratio compared to estimated Fair P/E ratio. Threat Debt is not well covered by operating cash flow. Paying a dividend but company has no free cash flows. Annual earnings are forecast to grow slower than the American market. Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Ameren, we've put together three further aspects you should further research: Risks: Every company has them, and we've spotted 3 warning signs for Ameren (of which 1 can't be ignored!) you should know about. Future Earnings: How does AEE's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
