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.
Luckily for you, our job at StockStory is to help you avoid short-term fads by pointing you toward high-quality businesses that can generate sustainable long-term growth. That said, here is one growth stock with significant upside potential and two whose momentum may slow.
Two Growth Stocks to Sell:
Restaurant Brands (QSR)
One-Year Revenue Growth: +16.8%
Formed through a strategic merger, Restaurant Brands International (NYSE:QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.
Why Is QSR Not Exciting?
- Estimated sales growth of 4.3% for the next 12 months implies demand will slow from its six-year trend
- Efficiency has decreased over the last year as its operating margin fell by 4.5 percentage points
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Restaurant Brands’s stock price of $71.43 implies a valuation ratio of 17.9x forward P/E. To fully understand why you should be careful with QSR, check out our full research report (it’s free for active Edge members).
Kura Sushi (KRUS)
One-Year Revenue Growth: +18.9%
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ:KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Does KRUS Give Us Pause?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $52.26 per share, Kura Sushi trades at 34x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than KRUS.
One Growth Stock to Buy:
Microsoft (MSFT)
One-Year Revenue Growth: +15.6%
Originally named "Micro-soft" for microcomputer software when founded in 1975, Microsoft (NASDAQ:MSFT) is a global technology company that develops software, cloud services, devices, and AI solutions for consumers, businesses, and organizations worldwide.
Why Do We Love MSFT?
- Microsoft is one of the great brands not just in tech but all of business. It produces mission-critical software and bundles it together, resulting in cream-of-the-crop gross margins.
- The company's elite unit economics lead to robust profit margins that improve over time. This speaks to the scale advantages and operating efficiency across its diverse portfolio, which spans everything from Office and Azure to Minecraft.
- Microsoft has a virtuous cycle of returns. Its dominant market position enables it to generate strong free cash flow, and it reinvests these funds into promising ventures that further strengthen its competitive moat.
Microsoft is trading at $477.87 per share, or 28.7x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.