1 Momentum Stock on Our Watchlist and 2 That Underwhelm

Great things are happening to the stocks in this article. They’re all outperforming the market over the last month because of positive catalysts such as a new product line, constructive news flow, or even a loyal Reddit fanbase.

However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. Keeping that in mind, here is one stock with the fundamentals to back up its performance and two best left ignored.

Two Momentum Stocks to Sell:

Revolve (RVLV)

One-Month Return: +36.2%

Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ:RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.

Why Should You Dump RVLV?

1. May need to improve its platform and marketing strategy as its 5.7% average growth in active customers underwhelmed
2. Demand has been weak recently as it posted disappointing growth in its average revenue per buyer and struggled to expand its platform
3. Earnings per share have contracted by 10.5% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

Revolve’s stock price of $28.11 implies a valuation ratio of 19.5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why RVLV doesn’t pass our bar.

Dollar Tree (DLTR)

One-Month Return: +25.9%

A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ:DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.

Why Do We Think Twice About DLTR?

1. Products have few die-hard fans as sales have declined by 11.9% annually over the last three years
2. Conservative approach to adding new stores shows management is focused on improving existing location performance
3. ROIC of 9.7% reflects management’s challenges in identifying attractive investment opportunities

Dollar Tree is trading at $130.50 per share, or 20.6x forward P/E. Dive into our free research report to see why there are better opportunities than DLTR.

One Momentum Stock to Watch:

SmartRent (SMRT)

One-Month Return: +45.8%

Founded by an employee at a real estate rental company, SmartRent (NYSE:SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.

Why Do We Watch SMRT?

1. ARR trends over the past two years show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
2. Earnings per share grew by 24.1% annually over the last three years and trumped its peers
3. Improving returns on capital suggest its past investments are beginning to deliver value

At $2.10 per share, SmartRent trades at 99.8x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

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