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.
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. Keeping that in mind, here are two growth stocks with significant upside potential and one that could be down big.
One Growth Stock to Sell:
Herc (HRI)
One-Year Revenue Growth: +28.5%
Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE:HRI) provides equipment rental and related services to a wide range of industries.
Why Is HRI Not Exciting?
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Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7 percentage points
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Earnings per share fell by 30.3% annually over the last two years while its revenue grew, partly because it diluted shareholders
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Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Herc is trading at $145.96 per share, or 16.6x forward P/E. If you’re considering HRI for your portfolio, see our FREE research report to learn more.
Two Growth Stocks to Buy:
American Superconductor (AMSC)
One-Year Revenue Growth: +34.3%
Founded in 1987, American Superconductor (NASDAQ:AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.
Why Is AMSC a Top Pick?
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Annual revenue growth of 43.3% over the past two years was outstanding, reflecting market share gains this cycle
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Free cash flow margin increased by 24.5 percentage points over the last five years, giving the company more capital to invest or return to shareholders
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Historical investments are beginning to pay off as its returns on capital are growing
At $29.91 per share, American Superconductor trades at 25.5x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Omnicom Group (OMC)
One-Year Revenue Growth: +40.6%
With a vast network of creative agencies that helped craft some of the most memorable ad campaigns in history, Omnicom Group (NYSE:OMC) is a strategic holding company that provides advertising, marketing, and communications services to many of the world’s largest companies.