Growth stocks can be an effective and lucrative way to play a volatile market. Since the start of 2024, the S&P500 and Nasdaq Composite indices have risen 11.2% and 11.5%, respectively. Driving these steadfast gains are relatively good earnings reports for a broad list of U.S. companies as well as optimism around the proliferation of artificial intelligence (AI) technologies. There are many high-flier stocks that saw their revenue and earnings grow over the former twelve months and have seen their share prices skyrocket as a result. AI chip developer Nvidia (NASDAQ:NVDA) is a key example of that.
There are also growth stocks that have certainly begun to fall out of favor with investors. Falling year-over-year sales growth rates, compressing margins and macroeconomic uncertainty are just some of shared traits of growth stocks that have entered the “growth stock graveyard.” Below are 3 former high-flier stocks that investors should be avoid at all costs.
SentinelOne (S)
SentinelOne (NYSE:S) is a cybersecurity firm that has slowly gone out of the favor of investors over the past couple of years. If we look over a 3-year period, S shares have plummeted a catastrophic 51%. Raising interest rates coupled with macroeconomic uncertainty has caused cybersecurity customers to pullback their spending. While larger cybersecurity firms have also felt the brunt of this investment doldrum, SentinelOne has particularly been afflicted. SentinelOne prides itself on its AI-enabled, all-encompassing cybersecurity platform: Singularity.
The platform’s uniqueness allowed SentinelOne to double sales from year-to-year for 2021 and 2022, but last year, it’s growth rate dramatically slowed.
For the complete fiscal year 2024, SentinelOne increased sales by 47% to $621.2 million compared to $422.2 million in fiscal year 2023. While this definitely represents strong double-digit growth, it is overshadowed by the higher growth figures the company was churning out in prior years.
Poor guidance for fiscal year 2025 also put investors on edge. S shares have dropped 24% on a year-to-date basis, identifying it as one of the former high-flier stocks.
Tesla (TSLA)
Elon Musk’s Tesla (NASDAQ:TSLA) continues to have a rough year in 2024. TSLA shares have fallen nearly 29% since the start of the year. The downward pressure on the electric vehicle (EV) maker’s share price started when, in January, CEO Elon Musk issued poor guidance for the full year. Higher interest rates as well as record high car insurance premiums have put the brakes on the growth of the EV market. More, Tesla has had to worry about Chinese competitors, especially BYD (OTCMKTS:BYDDY) eat away at its market share in the world’s largest EV market.
The end of the first quarter marked Tesla’s first year-over-year decline in quarterly deliveries in years. To make matters worse, the EV maker’s sales in China fell 18% in April amidst the intensifying competitive landscape in the world’s second largest economy.
Tesla once was a key growth stock for many investors playing the EV sector, but now the growth stocks in the sector going forward are likely to be BYD and its close counterparts.
Unity Software (U)
Online content has become the main medium of entertainment, and in that same vein, the enablement of various forms of online content creation has become a key growth engine for a plethora of internet tech companies. Unity Software (NYSE:U) is one of these companies, and it provides the software tools with which content creators can create 2D as well as 3D experiences for gamers. Despite being able to maintain solid, top-line growth rates in the double digits, the software company has struggled to contain its ballooning net losses. For example, in 2022, Unity Software’s net loss increased from $532.6 million in 2021 to $921 million in 2022.
Most recently, Unity’s Q1 results for 2024 saw the firm’s quarterly net loss widen year-over-year. In the meantime, the software maker’s share price has dipped more than 53% since the start of the year. Over the past 3 years, shares have lost more than 80% of their value.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.