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.
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. On that note, here are three growth stocks facing an uphill battle and some other opportunities you should consider instead.
Figs (FIGS)
One-Year Revenue Growth: +18.7%
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Do We Pass on FIGS?
- Demand for its offerings was relatively low as its number of active customers has underwhelmed
- Earnings per share have contracted by 5% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
- Poor free cash flow margin of 8.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Figs’s stock price of $11.92 implies a valuation ratio of 19.9x forward EV-to-EBITDA. To fully understand why you should be careful with FIGS, check out our full research report (it’s free).
Compass (COMP)
One-Year Revenue Growth: +40.1%
Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE: COMP) is a digital-first company operating a residential real estate brokerage in the United States.
Why Is COMP Risky?
- Number of transactions has disappointed over the past two years, indicating weak demand for its offerings
- Persistent operating margin losses suggest the business manages its expenses poorly
- Low free cash flow margin of 0.9% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $8.63 per share, Compass trades at 11.7x forward P/E. If you’re considering COMP for your portfolio, see our FREE research report to learn more.
Dime Community Bancshares (DCOM)
One-Year Revenue Growth: +26.5%
With roots dating back to 1910 and a name that evokes the historic "dime savings banks" of America's past, Dime Community Bancshares (NASDAQ: DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.
Why Do We Think Twice About DCOM?
- Net interest margin of 2.9% is well below other banks, signaling its loans aren’t very profitable
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.1% annually while its revenue grew
- Capital trends were unexciting over the last two years as its 5.9% annual tangible book value per share growth was below the typical banking firm
Dime Community Bancshares is trading at $40.08 per share, or 1.2x forward P/B. Check out our free in-depth research report to learn more about why DCOM doesn’t pass our bar.
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