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.
However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. On that note, here are three stocks that are likely overheated and some you should look into instead.
Five Below (FIVE)
One-Month Return: +15.7%
Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ: FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.
Why Are We Hesitant About FIVE?
- Revenue base of $4.43 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 35.4% that must be offset through higher volumes
- Underwhelming 10.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $182.02 per share, Five Below trades at 31.4x forward P/E. If you’re considering FIVE for your portfolio, see our FREE research report to learn more.
Malibu Boats (MBUU)
One-Month Return: +8.7%
Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.
Why Are We Out on MBUU?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Poor free cash flow margin of 6.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Malibu Boats’s stock price of $29.44 implies a valuation ratio of 22x forward P/E. Check out our free in-depth research report to learn more about why MBUU doesn’t pass our bar.
Cogent (CCOI)
One-Month Return: +26.9%
Operating a massive network spanning 20,000 miles of fiber optic cable and connecting to over 3,200 buildings worldwide, Cogent Communications (NASDAQ: CCOI) provides high-speed Internet access, private network services, and data center colocation to businesses and bandwidth-intensive organizations across 54 countries.
Why Does CCOI Fall Short?
- Number of total connections has disappointed over the past two years, indicating weak demand for its offerings
- Waning returns on capital imply its previous profit engines are losing steam
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Cogent is trading at $21.78 per share, or 10x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CCOI.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
