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.
Deciphering which businesses can sustain their high growth rates is a challenge for even the most seasoned professionals, which is why we started StockStory. On that note, here are three growth stocks whose best days may be over and some alternatives you should consider instead.
CAVA (CAVA)
One-Year Revenue Growth: +22.4%
Starting from a single Washington, D.C. location, CAVA (NYSE: CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.
Why Does CAVA Give Us Pause?
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Negative returns on capital show management lost money while trying to expand the business
CAVA is trading at $93.25 per share, or 172.3x forward P/E. Dive into our free research report to see why there are better opportunities than CAVA.
AeroVironment (AVAV)
One-Year Revenue Growth: +117%
Focused on the future of autonomous military combat, AeroVironment (NASDAQ: AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.
Why Are We Hesitant About AVAV?
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 15.3 percentage points
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 8.4% annually
- Free cash flow margin dropped by 6.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $194.84 per share, AeroVironment trades at 47.1x forward P/E. Read our free research report to see why you should think twice about including AVAV in your portfolio.
Excelerate Energy (EE)
One-Year Revenue Growth: +44.3%
Operating specialized vessels that can deliver up to 1.2 billion cubic feet of natural gas per day, Excelerate Energy (NYSE: EE) provides liquified natural gas regasification services using floating vessels that convert LNG back into natural gas.
Why Are We Wary of EE?
- Subscale operations are evident in its revenue base of $1.23 billion, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 30.1% is below its competitors, leaving less money to invest in exploration and production
Excelerate Energy’s stock price of $34.66 implies a valuation ratio of 14.8x forward P/E. If you’re considering EE for your portfolio, see our FREE research report to learn more.
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