Growth is a hallmark of all great companies, but the laws of gravity eventually take hold. Those who rode the COVID boom and ensuing tech selloff in 2022 will surely remember that the market’s punishment can be swift and severe when trajectories fall.

The risks that can come from buying these assets is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here is one growth stock expanding its competitive advantage and two whose momentum may slow.

Two Growth Stocks to Sell:

Paylocity (PCTY)

1-Year Revenue Growth: +16%

Founded by payroll software veteran Steve Sarowitz in 1997, Paylocity (NASDAQ:PCTY) is a provider of payroll and HR software for small and medium-sized enterprises.

Why Does PCTY Worry Us?

1. Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 92% net revenue retention rate
2. Estimated sales growth of 8.8% for the next 12 months implies demand will slow from its three-year trend
3. Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 68.6%

Paylocity’s stock price of $205.51 implies a valuation ratio of 7.1x forward price-to-sales. Check out our free in-depth research report to learn more about why PCTY doesn’t pass our bar.

Tilray (TLRY)

1-Year Revenue Growth: +18.4%

Founded in 2013, Tilray Brands (NASDAQ:TLRY) engages in cannabis research, cultivation, and distribution, offering a range of medical and recreational cannabis products, hemp-based foods, and alcoholic beverages.

Why Should You Dump TLRY?

1. Suboptimal cost structure is highlighted by its history of operating losses
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging

Tilray is trading at $0.75 per share, or 8.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than TLRY.

One Growth Stock to Watch:

DraftKings (DKNG)

1-Year Revenue Growth: +30.1%

Getting its start in daily fantasy sports, DraftKings (NASDAQ:DKNG) is a digital sports entertainment and gaming company.

Why Should DKNG Be on Your Watchlist?

1. Increase in monthly unique players shows customers are eagerly embracing its offerings
2. Expected revenue growth of 35.7% for the next year suggests its market share will rise
3. Free cash flow margin is on track to jump by 4.2 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends

At $44.65 per share, DraftKings trades at 35.5x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.