3 Overrated Stocks with Questionable Fundamentals

The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to new product launches, positive news, or even a dedicated social media following.

But not every company with momentum is a long-term winner, and plenty of investors have lost money betting on short-term fads. On that note, here are three stocks that are likely overheated and some you should look into instead.

Cummins (CMI)

One-Month Return: +15.7%

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.

Why Are We Cautious About CMI?

1. Sizable revenue base leads to growth challenges as its 6% annual revenue increases over the last two years fell short of other industrials companies
2. 10.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Eroding returns on capital suggest its historical profit centers are aging

At $322.96 per share, Cummins trades at 11.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CMI doesn’t pass our bar.

Alight (ALIT)

One-Month Return: +12.6%

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE:ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

Why Is ALIT Risky?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last five years
2. Earnings per share have dipped by 3.5% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging

Alight is trading at $5.47 per share, or 8.6x forward P/E. If you’re considering ALIT for your portfolio, see our FREE research report to learn more.

Applied Digital (APLD)

One-Month Return: +67.7%

Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ:APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.

Why Are We Wary of APLD?

1. Historically negative EPS is a worrisome sign for conservative investors and obscures its long-term earnings potential
2. Negative free cash flow raises questions about the return timeline for its investments
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Applied Digital’s stock price of $6.76 implies a valuation ratio of 11.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including APLD in your portfolio.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.