2 Growth Stocks with Explosive Upside and 1 We Avoid

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. That said, here are two growth stocks where the best is yet to come and one that could be down big.

One Growth Stock to Sell:

Varonis Systems (VRNS)

One-Year Revenue Growth: +15.2%

Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ:VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.

Why Should You Dump VRNS?

1. Sales trends were unexciting over the last five years as its 16.1% annual growth was below the typical software company

2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 2.5 percentage points

Varonis Systems’s stock price of $31.33 implies a valuation ratio of 4.6x forward price-to-sales. Check out our free in-depth research report to learn more about why VRNS doesn’t pass our bar.

Two Growth Stocks to Watch:

American Superconductor (AMSC)

One-Year Revenue Growth: +34.3%

Founded in 1987, American Superconductor (NASDAQ:AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.

Why Will AMSC Outperform?

1. Market share has increased this cycle as its 43.3% annual revenue growth over the last two years was exceptional

2. Free cash flow margin increased by 24.5 percentage points over the last five years, giving the company more capital to invest or return to shareholders

3. Improving returns on capital suggest its past investments are beginning to deliver value

American Superconductor is trading at $51.04 per share, or 51.1x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

ANI Pharmaceuticals (ANIP)

One-Year Revenue Growth: +37%

With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ:ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.

Why Are We Positive on ANIP?

1. Market share has increased this cycle as its 33.6% annual revenue growth over the last two years was exceptional

2. Free cash flow margin grew by 38.4 percentage points over the last five years, giving the company more chips to play with

3. Returns on capital are increasing as management’s prior bets are starting to bear fruit

At $81.10 per share, ANI Pharmaceuticals trades at 1.5x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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