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. All that said, here is one stock with the fundamentals to back up its performance and two that may correct.
Two Momentum Stocks to Sell:
LGI Homes (LGIH)
One-Month Return: +21.2%
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Do We Avoid LGIH?
- Sales tumbled by 8.6% annually over the last five 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
At $47.20 per share, LGI Homes trades at 13.7x forward P/E. Check out our free in-depth research report to learn more about why LGIH doesn’t pass our bar.
GoodRx (GDRX)
One-Month Return: +30.1%
Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ: GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.
Why Is GDRX Risky?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Smaller revenue base of $787.9 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Negative returns on capital show management lost money while trying to expand the business
GoodRx’s stock price of $2.78 implies a valuation ratio of 7.7x forward P/E. If you’re considering GDRX for your portfolio, see our FREE research report to learn more.
One Momentum Stock to Buy:
Datadog (DDOG)
One-Month Return: +59.7%
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ: DDOG) provides a software platform that helps organizations monitor and secure their cloud applications, infrastructure, and services.
Why Should You Buy DDOG?
- Customers view its software as mission-critical to their operations as its ARR has averaged 29.5% growth over the last year
- Expected revenue growth of 23.7% for the next year suggests its market share will rise
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
Datadog is trading at $186.10 per share, or 11.5x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum - both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week's Strong Momentum stocks - FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
