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. Keeping that in mind, here are two growth stocks with significant upside potential and one climbing an uphill battle.
One Growth Stock to Sell:
Somnigroup (SGI)
One-Year Revenue Growth: +39.3%
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Why Do We Avoid SGI?
- Lackluster 14.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1 percentage points over the next year
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $90.81 per share, Somnigroup trades at 28.9x forward P/E. Check out our free in-depth research report to learn more about why SGI doesn’t pass our bar.
Two Growth Stocks to Watch:
LendingClub (LC)
One-Year Revenue Growth: +25.7%
Pioneering peer-to-peer lending in the US before evolving into a digital bank, LendingClub (NYSE:LC) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
Why Should You Buy LC?
- Impressive 24.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Earnings per share have massively outperformed its peers over the last two years, increasing by 38.3% annually
LendingClub’s stock price of $19.51 implies a valuation ratio of 13.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
German American Bancorp (GABC)
One-Year Revenue Growth: +31.5%
Founded in 1910 during a wave of community banking expansion in the Midwest, German American Bancorp (NASDAQ:GABC) is a financial holding company that provides banking, wealth management, and insurance services across southern Indiana and Kentucky.
Why Are We Positive On GABC?
- Net interest margin expanded by 35 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Anticipated efficiency ratio improvement of -5.2 percentage points over the next year signals it will gain leverage on its fixed costs and become more productive
- Annual tangible book value per share growth of 26.1% over the last two years was superb and indicates its capital strength increased during this cycle
German American Bancorp is trading at $39.96 per share, or 1.3x forward P/B. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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