1 surging stock with impressive fundamentals and 2 we find risky

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.

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 lasting competitive advantages and two best left ignored.

Two momentum stocks to sell:

Bath and Body Works (BBWI)

One-Month Return: +28.4%

Spun off from L Brands in 2020, Bath & Body Works (NYSE:BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.

Why Are We Wary of BBWI?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand

2. Estimated sales for the next 12 months are flat and imply a softer demand environment

3. Earnings growth underperformed the sector average over the last three years as its EPS grew by just 3.8% annually

At $20.78 per share, Bath and Body Works trades at 8.4x forward P/E. Read our free research report to see why you should think twice about including BBWI in your portfolio, it’s free.

Trupanion (TRUP)

One-Month Return: +26.1%

Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ:TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet’s unique characteristics.

Why Does TRUP Fall Short?

1. Annual book value per share growth of 2.4% over the last five years was below our standards for the insurance sector

2. Estimated book value per share growth of 4.1% for the next 12 months implies profitability will slow from its two-year trend

3. Push for growth has led to negative returns on capital, signaling value destruction

Trupanion’s stock price of $29.35 implies a valuation ratio of 3.1x forward P/B. If you’re considering TRUP for your portfolio, see our FREE research report to learn more.

One momentum stock to buy:

APA Corporation (APA)

One-Month Return: +22.7%

Operating in three continents with a history stretching back to 1954, APA Corporation (NASDAQ:APA) explores for, develops, and produces crude oil, natural gas, and natural gas liquids in the U.S., Egypt, and the U.K. North Sea.

Why Are We Bullish on APA?

1. Offerings and unique value proposition resonate with customers, as seen in its above-market 4.9% annual sales growth over the last ten years

2. Dominant market position is represented by its $8.37 billion in revenue and gives it fixed cost leverage when sales grow

3. Highly-profitable operating model results in strong unit economics and a top-tier gross margin of 67.7%