The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to some combination of positive news, upbeat results, or supportive macro developments. As such, investors are taking notice and bidding up shares.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. Keeping that in mind, here is one stock with the fundamentals to back up its performance and two that may correct.
One-Month Return: +23%
Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.
Why Does SOUN Worry Us?
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Gross margin of 40.5% reflects its high servicing costs
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Operating margin declined by 43.6 percentage points over the last year as it scaled
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Negative free cash flow raises questions about the return timeline for its investments
SoundHound AI is trading at $13.09 per share, or 27.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SOUN.
One-Month Return: +18.3%
Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ:AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.
Why Does AFRM Give Us Pause?
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Negative return on equity shows that some of its growth strategies have backfired
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7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $88.46 per share, Affirm trades at 37.5x forward P/E. To fully understand why you should be careful with AFRM, check out our full research report (it’s free).
One-Month Return: +22.9%
Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE:BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.
Why Do We Watch BROS?
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Rapid rollout of new restaurants to capitalize on market opportunities makes sense given its strong same-store sales performance
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Same-store sales growth averaged 5.4% over the past two years, showing it’s bringing new and repeat diners into its restaurants
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Free cash flow margin jumped by 9.8 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
