The stock market has been roaring higher since 2023. The S&P 500 and the Nasdaq remain elevated as the Magnificent Seven stocks propel these indices to all-time highs. While many stocks have been winners amid cooling inflation and robust consumer spending, that’s not the story for every growth stock.
Some investors cling to the hope that superstar stocks during the pandemic will reclaim their highs. Other investors may believe that certain rallies are bound to continue forever even if the financials and competitive landscape don’t offer sufficient justification.
Declining revenue, an excessive valuation and rising net losses are three signs of a growth stock to sell. Holding onto those investments can result in higher losses that make it more difficult to reach long-term financial goals. You don’t want to get caught holding onto those types of stocks, especially when investors can choose from several indices and ETFs. These are some of the growth stocks to sell before they lose value.
Zoom (ZM)
Zoom (NASDAQ:ZM) certainly enjoyed its heyday during the pandemic.
People had to use video conferencing to join business meetings, speak with friends and attend class. Zoom stock soared by more than 700% in less than one year. However, the lockdown restrictions were eventually rescinded, and Zoom lost its edge.
The stock now remains roughly 90% removed from its all-time high. Although a 22 P/E ratio makes Zoom seem like a bargain, financials suggest a different story. Revenue only increased by 3.2% year-over-year (YOY) in the first quarter of fiscal 2025. It’s a disappointing result for a company that once achieved solid growth rates during the pandemic.
Other tech giants have comparable video conferencing options which makes Zoom even less relevant. Leadership is well aware of the situation and no longer wants to be exclusively known as a video conferencing company. Recognizing limited growth, Zoom is looking for ways to pivot. Unfortunately, investors are pivoting to other stocks, resulting in a 14% year-to-date (YTD) decline for Zoom shares.
Workhorse (WKHS)
Workhorse (NASDAQ:WKHS) really lived up to its name in the pandemic, logging a 1,500% gain in less than one year. However, the electric vehicle (EV) bubble popped, and investors are looking more carefully at financials. While a technical analysis bore fruit during the pandemic, a fundamental analysis highlights a company that’s going downhill.
Revenue decreased from $1.7 million to $1.3 million in Q1 of 2024. That’s a 21% YOY decline for a company that is valued at $29 million. Further, net losses grew to $29.2 million in the year which indicates Workhorse is digging itself into a deeper hole. The investment thesis for a company that burned through $29.2 million and only had $1.3 million in revenue to show for it lacks any foundation.
So, it’s no wonder that the stock is down by 78% YTD and has dropped by 97% over the past five years. Workhorse is heading to zero. And a reverse 1-for-20 stock split isn’t going to solve that. With shares trading at $1.53 per share, Workhorse may soon have to initiate another reverse split just to remain eligible for trading in the stock market.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) has lost its way. While it’s good to see companies focus on growing revenue and earnings, the online marketplace took it a bit too far. The pandemic yielded great results for the company, but it was starting to lose its culture. Etsy has frustrated many of its merchants and has drifted away from unique and personalized items.
Moreover, recent earnings results don’t lie. Gross merchandise sales dropped by 3.7% YOY in the first quarter as fewer consumers shop on Etsy. The e-commerce firm delivered 0.8% YOY revenue growth because of higher fees and advertisements. Still, that’s not what you want from a growth company. Net income dipped by 15.5% YOY.
Sadly, high growth rates appear to be a thing of the past, and investors have been noticing. Shares are down by 27% YTD as investors consider their options. It doesn’t make sense to stick with a company that has a low probability of generating moderate growth in the future when investors can choose from corporations that are growing at faster rates.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.