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.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here are three stocks that are likely overheated and some you should look into instead.
DigitalOcean (DOCN)
One-Month Return: +12.1%
Built for simplicity in a world of complex cloud solutions, DigitalOcean (NYSE:DOCN) provides a simplified cloud computing platform that enables developers and small businesses to quickly deploy and scale applications.
Why Is DOCN Not Exciting?
- Customers were hesitant to make long-term commitments to its software as its 13.3% average ARR growth over the last year was sluggish
- Platform has low switching costs as its net revenue retention rate of 98.8% demonstrates high turnover
- Gross margin of 59.7% reflects its high servicing costs
DigitalOcean is trading at $38.31 per share, or 4x forward price-to-sales. To fully understand why you should be careful with DOCN, check out our full research report (it’s free for active Edge members).
Fortrea (FTRE)
One-Month Return: +19.1%
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ:FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Do We Think FTRE Will Underperform?
- Sales tumbled by 3.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fortrea’s stock price of $10.03 implies a valuation ratio of 16.2x forward P/E. If you’re considering FTRE for your portfolio, see our FREE research report to learn more.
Ibotta (IBTA)
One-Month Return: +15.6%
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE:IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Does IBTA Worry Us?
- Subscale operations are evident in its revenue base of $367.6 million, meaning it has fewer distribution channels than its larger rivals
- Forecasted revenue decline of 10.9% for the upcoming 12 months implies demand will fall off a cliff
At $32.19 per share, Ibotta trades at 39.7x forward P/E. Check out our free in-depth research report to learn more about why IBTA doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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