3 Inflated Stocks We Approach with Caution

The stocks featured in this article have all approached their 52-week highs. When these price levels hit, it typically signals strong business execution, positive market sentiment, or significant industry tailwinds.

While momentum can be a leading indicator, it has burned many investors as it doesn't always correlate with long-term success. On that note, here are three overhyped stocks that may correct and some you should consider instead.

Teladoc (TDOC)

One-Month Return: +30.9%

Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE:TDOC) is a telemedicine platform that facilitates remote doctor's visits.

Why Are We Wary of TDOC?

1. Sales stagnated over the last three years and signal the need for new growth strategies

2. Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 9% annually

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

Teladoc is trading at $9.27 per share, or 6.7x forward EV/EBITDA. To fully understand why you should be careful with TDOC, check out our full research report (it's free) .

Tennant (TNC)

One-Month Return: +3.5%

As the world's largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.

Why Do We Think TNC Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last two years

2. Sales were less profitable over the last two years as its earnings per share fell by 23.9% annually, worse than its revenue declines

3. Eroding returns on capital suggest its historical profit centers are aging

Tennant's stock price of $88.32 implies a valuation ratio of 15.3x forward P/E. If you're considering TNC for your portfolio, see our FREE research report to learn more .

Merchants Bancorp (MBIN)

One-Month Return: -0.6%

With a strategic focus on low-risk, government-backed lending programs, Merchants Bancorp (NASDAQCM:MBIN) is an Indiana-based bank holding company specializing in multi-family mortgage banking, mortgage warehousing, and traditional banking services.

Why Do We Think Twice About MBIN?

1. Muted 7.4% annual revenue growth over the last two years shows its demand lagged behind its banking peers

2. Costs have risen faster than its revenue over the last five years, causing its efficiency ratio to worsen by 18.3 percentage points

3. Low tier one capital ratio of 9.3% indicates the company may struggle to maintain adequate liquidity during periods of economic stress