Red flag alert! 3 growth stocks you should sell before they drop to zero.

With last week’s gloomy labor market report behind us, S&P500 is currently below its all-time high. And there is fear in the air that the US economy may be in worse shape than expected – even though the Federal Reserve is now expected to initiate a 0.50% rate cut. The result? A sell-off.

When investing in growth stocks, it is more important than ever to focus on fundamental sales and earnings figures.

“Growth stocks are companies that are expected to grow revenue and profits faster than the market average,” according to Investopedia. So when the rug is pulled out from under them, companies with poor financials will fall the fastest. Looking for growth stocks to sell could be a smart move. before that happens.

To create my list of stocks for this article, I searched the market using the following criteria.

• Earnings growth rate: Negative growth in the latest annual financial statements and the latest quarterly report
• Sales growth rate: Negative growth in the latest annual financial statements and the latest quarterly report
• Analyst Rating: Buy or Hold
• Trading Price: Over $10

Then I sorted the stocks by their largest percentage decline in earnings and came up with the top three. The results are a bit subjective because I looked for stocks with buy and hold recommendations, not stocks with sell recommendations. However, a linear decline in the annual and quarterly reports suggests that you may need to sell these growth stocks before the bottom falls out from under the stocks.

(SILC)

Known as a leading provider of high-performance network and data infrastructure solutions, Siliconcom Ltd. (NASDAQ:SILC) provides OEMs with solutions for their server and cloud-based systems. Silicom Ltd.’s products range from server network interface cards to programmable cards and other standalone products. The company is active in data storage and big data, network devices, cloud and virtualized data centers, servers and IoT.

The year 2023 was a challenging one for Silicom Ltd. Revenue fell from $150.6 million to $124.1 million. The bottom line was also negative at -44 cents per share, compared to the previous year’s profit of $2.73 – a decline of 116%. This prompted the company to announce a five-year plan to cut costs and expand its core business.

However, the second quarter of fiscal 2024 results show no signs of recovery as revenue continued to decline to $14.5 million from $38.1 million last year. Meanwhile, the quarter ended with a loss of 25 cents, compared to a profit of 56 cents in the same quarter last year. Silicom Ltd. attributes the deteriorating performance to excess inventory at customers, longer sales cycles and a slowdown in global demand.

SILC stock is already down 34% year-to-date and has a Hold rating. Given Silicom Ltd.’s dire financial picture, I would make it a candidate for any growth stock to sell.

Stepan Company (SCL)

Stepan Company (NYSE:SCL) is a leading chemical producer specializing in intermediates and specialty chemicals used in various products such as detergents, disinfectants, emulsifiers and more.

SCL operates in three main segments. The first segment is Polymers, which supplies its customers with polyester resins and other polymer-related products. The second segment is Surfactants, which produces cleaning chemicals used in detergents, fabric softeners and more. The third segment is Specialty Products, which includes emulsifiers, flavors and solubilizers for pharmaceutical and food applications.

Like the other two growth stocks for sale on this list, SCL’s financial performance has declined, raising some warning signs for the current fiscal year and beyond.

In 2023, for example, net sales fell 16% year-on-year, while operating profit fell a whopping 72%. Worse still, net profit fell 73%.

“The Company had a challenging 2023 due to a slowdown in demand in most end-use markets and significant de-inventorying by customers and distribution channels,” said President and CEO Scott Behrens. “While we believe the negative impacts of de-inventorying are largely behind us, we continue to experience significant de-inventorying in our agricultural business and expect this to continue through the first half of 2024.”

As promised, the second quarter of fiscal 2024 results were disappointing. Net sales and net income decreased 10% and 19% year-on-year, respectively. SCL’s sales and earnings were impacted by rising corporate expenses, lower selling prices and competitive pressures in Latin America.

Executives are cautiously optimistic about its prospects and analysts recommend SCL stock as a buy. But the company’s declining metrics may be reason enough to put the company on your sell list.

Schneider National (SNDR)

Schneider National (NYSE:SNDR) is a freight and logistics company that operates in three main segments. Truckload provides freight services under long-term contracts on consistent routes. Intermodal provides transportation and rail services to its customers. Finally, Logistics provides transportation system analysis and additional sources of trucking capacity to its customers.

Schneider National’s fiscal 2023 results do not bode well for the company’s immediate future. Operating revenues fell 17% year over year, while operating income fell 51%. Worse, the company’s bottom line fell 48% on both GAAP and non-GAAP basis.

More recently, results for the second quarter of fiscal 2024 are no better (or even worse in some areas). While operating income fell by just 5%, higher expenses and lower operating income led to a massive 69% drop in net income.

While Wall Street analysts have a consensus rating of SNDR stock as a buy, its shaky fundamentals and deteriorating financials suggest adding it to my list of growth stocks to sell.

At the time of publication, Rick Orford had no position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing guidelines

At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.