1 momentum stock with exciting potential and 2 we brush off

The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to some combination of positive news, upbeat results, or supportive macro developments. As such, investors are taking notice and bidding up shares.

However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. All that said, here is one stock we think lives up to the hype and two that may correct.

Two momentum stocks to sell:

Paylocity (PCTY)

One-month return: +17.6%

Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ:PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.

Why Do We Think Twice About PCTY?

1. Average ARR growth of 12.2% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals

2. Estimated sales growth of 6.9% for the next 12 months implies demand will slow from its two-year trend

3. Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient

At $167.60 per share, Paylocity trades at 4.8x forward price-to-sales. To fully understand why you should be careful with PCTY, check out our full research report (it’s free).

Comstock Resources (CRK)

One-month return: +18.4%

Operating in the Haynesville shale where a single well can produce millions of cubic feet of gas daily, Comstock Resources (NYSE:CRK) drills for and produces natural gas from underground shale rock formations in Louisiana and Texas.

Why Do We Steer Clear of CRK?

1. Annual revenue growth of 3.7% over the last five years was below our standards for the energy upstream and integrated energy sector

2. Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 9.1 percentage points

3. Cash burn makes us question whether it can achieve sustainable long-term growth

Comstock Resources is trading at $14.59 per share, or 41.9x forward P/E. If you’re considering CRK for your portfolio, see our FREE research report to learn more.

One momentum stock to buy:

monday.com (MNDY)

One-month return: +19.2%

With its colorful interface of boards, columns, and automation that replaced the chaos of spreadsheets, monday.com (NASDAQ:MNDY) is a cloud-based work operating system that helps teams manage projects, track tasks, and streamline workflows through customizable interfaces.