3 Inflated Stocks in the Doghouse

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. Keeping that in mind, here are three overhyped stocks that may correct and some you should consider instead.

Elastic (ESTC)

One-Month Return: +17.9%

Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE:ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.

Why Are We Cautious About ESTC?

1. Suboptimal cost structure is highlighted by its history of operating losses
2. Projected 2.3 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position

Elastic’s stock price of $90.10 implies a valuation ratio of 5.8x forward price-to-sales. Check out our free in-depth research report to learn more about why ESTC doesn’t pass our bar.

AECOM (ACM)

One-Month Return: +14.3%

Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.

Why Are We Wary of ACM?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 1.6% decline in its backlog
2. High input costs result in an inferior gross margin of 6.4% that must be offset through higher volumes
3. Subpar operating margin of 4.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats

At $107.44 per share, AECOM trades at 20.9x forward P/E. To fully understand why you should be careful with ACM, check out our full research report (it’s free).

The Pennant Group (PNTG)

One-Month Return: +10.9%

Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ:PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.

Why Are We Hesitant About PNTG?

1. Smaller revenue base of $748.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

The Pennant Group is trading at $28 per share, or 25.2x forward P/E. Read our free research report to see why you should think twice about including PNTG in your portfolio.

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free.