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 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: +17.4%
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 Do We Think Twice About ESTC?
- Sales trends were unexciting over the last three years as its 19% annual growth was below the typical software company
- Historical operating margin losses point to an inefficient cost structure
- Projected 1.3 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
Elastic is trading at $91.45 per share, or 5.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ESTC.
Applied Digital (APLD)
One-Year Revenue Growth: +30.2%
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Are We Wary of APLD?
- Earnings per share fell by 78.9% annually over the last two years while its revenue grew, partly because it diluted shareholders
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Applied Digital’s stock price of $16.98 implies a valuation ratio of 42.5x forward EV-to-EBITDA. If you’re considering APLD for your portfolio, see our FREE research report to learn more.
Perella Weinberg (PWP)
One-Year Revenue Growth: +20%
Founded in 2006 by veteran investment bankers Joseph Perella and Peter Weinberg during a wave of boutique advisory firm launches, Perella Weinberg Partners (NASDAQ: PWP) is a global independent advisory firm that provides strategic and financial advice to corporations, financial sponsors, and government institutions.
Why Does PWP Worry Us?
- Flat earnings per share over the last three years underperformed the sector average
- Negative return on equity shows management lost money while trying to expand the business
At $21.85 per share, Perella Weinberg trades at 16x forward P/E. Check out our free in-depth research report to learn more about why PWP doesn’t pass our bar.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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