Exciting developments are taking place for the stocks in this article. They’ve all surged ahead of the broader market over the last month as catalysts such as new products and positive media coverage have propelled their returns.
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.
American Eagle (AEO)
One-Month Return: +13.3%
With a heavy focus on denim, American Eagle Outfitters (NYSE: AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
Why Does AEO Fall Short?
- Lackluster 4.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Projected sales decline of 2.6% for the next 12 months points to a tough demand environment ahead
- ROIC of 2.6% reflects management’s challenges in identifying attractive investment opportunities
American Eagle’s stock price of $12.07 implies a valuation ratio of 6.8x forward P/E. To fully understand why you should be careful with AEO, check out our full research report (it’s free).
Avis Budget Group (CAR)
One-Month Return: +45.4%
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.
Why Is CAR Risky?
- Demand for its offerings was relatively low as its number of available rental days - car rental has underwhelmed
- Waning returns on capital imply its previous profit engines are losing steam
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $103.69 per share, Avis Budget Group trades at 3.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CAR doesn’t pass our bar.
Iridium (IRDM)
One-Month Return: +10.2%
With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ: IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.
Why Are We Wary of IRDM?
- Revenue base of $841.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Free cash flow margin dropped by 3.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Iridium is trading at $26.80 per share, or 18.3x forward P/E. Dive into our free research report to see why there are better opportunities than IRDM.
High-Quality Stocks for All Market Conditions
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 9 Market-Beating Stocks. 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.
