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.

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 is one stock we think lives up to the hype and two not so much.

Two Momentum Stocks to Sell:

Petco (WOOF)

One-Month Return: +25.5%

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Does WOOF Worry Us?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

2. Suboptimal cost structure is highlighted by its history of operating losses

3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $3.10 per share, Petco trades at 50.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar .

Lovesac (LOVE)

One-Month Return: +16.3%

Known for its oversized, premium beanbags, Lovesac (NASDAQ:LOVE) is a specialty furniture brand selling modular furniture.

Why Are We Wary of LOVE?

1. Lackluster 2.2% annual revenue growth over the last two years indicates the company is losing ground to competitors

2. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.5 percentage points

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Lovesac’s stock price of $21.01 implies a valuation ratio of 44x forward price-to-earnings. To fully understand why you should be careful with LOVE, check out our full research report (it’s free) .

One Momentum Stock to Watch:

Alignment Healthcare (ALHC)

One-Month Return: -0.7%

Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ:ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.

Why Does ALHC Stand Out?

1. Customer trends over the past two years show it’s maintaining a steady flow of new contracts that can potentially increase in value over time

2. Notable projected revenue growth of 38.6% for the next 12 months hints at market share gains

3. Adjusted operating margin expanded by 2.1 percentage points over the last two years as it scaled and became more efficient