2 Surging Stocks That You'll Want to Think Twice About Buying Today

Key Points

• Tilray Brands has been soaring in the past month but the cannabis company faces limited growth opportunities.

• Opendoor Technologies has thin gross margins and its business is highly vulnerable to the housing market.

• Speculation, rather than fundamentals, has been fueling both of these stocks.

• 10 stocks we like better than Tilray Brands ›

Stocks that quickly rise in value can seem like exciting ones to invest in. Taking advantage of the momentum can result in some great gains for investors. But when the fundamentals don't support a stock's movements, then you end up speculating rather than investing, which can add a lot of risk and uncertainty to the equation.

As tempting as it might be to invest in stocks that appear to be hot, it's important to consider fundamentals and ensure there's a good, bona fide reason for doing so. By trying to simply jump on a bandwagon and follow the crowd, you're exposing your portfolio to considerable risk.

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Two stocks that have been exceptionally hot in recent weeks are Tilray Brands (NASDAQ: TLRY) and Opendoor Technologies (NASDAQ: OPEN). After Monday's close on July 28, they were both up more than 70% in just the past month. But while they have been on fire of late, here's why you might still want to hold off on buying them.

Image source: Getty Images.

Tilray Brands

Cannabis company Tilray Brands looks like a hot buy but when you take a step back and take into account the big picture, you see a much different story. In five years, its stock has declined by more than 91%. Although investors may be benefiting from its 75% gains in the past month, those who have been hanging on for the long term are still down big.

The risk with the business is that it's struggling to grow, and there is seemingly no path to profitability. Much of the hope around the Canada-based company revolves around the potential for it to enter the U.S. marijuana market. But with the federal ban on marijuana remaining in effect and legalization not likely to happen anytime soon, the company is left with no compelling growth opportunities or ways to persuade growth investors of its potential.

Tilray's poor growth prospects and disappointing financials are why I believe it's highly probable that the stock gives back its recent gains in the near future.

The company recently wrapped up its 2025 fiscal year, which ended on May 31. Net revenue for the year totaled $821.3 million and was up 4%, but acquisitions in the beer industry are a big reason the company's top line grew at all. And more importantly, the business is still unprofitable. Tilray incurred an operating loss of $2.3 billion for the full fiscal year, which included impairment charges on intangible assets and goodwill totaling $2.1 billion.

If you look at the stock from afar, you might think Tilray is an exciting buy. But a closer look at the business suggests there's really not much of a reason to be bullish on it, and this rally is likely to be short-lived.

Opendoor Technologies

A stock that's been even hotter than Tilray of late is Opendoor Technologies. It's up over 300% in just the past month. It's an astounding rally that might have you believe the company posted an impressive earnings result or there has been a major development. In reality, there hasn't even been a clear catalyst to explain its impressive returns. Instead, it looks like Opendoor has become one of the latest meme stocks.

The company is essentially in the house-flipping business -- it tries to buy homes for cash and then sell them for a profit. It relies heavily on a strong housing market and it's an extremely capital-intensive business. During the first three months of the year, the company reported revenue of $1.2 billion and its gross profit on that was just $99 million -- less than 9% of its top line. After factoring in overhead and other operating expenses, the business posted a net loss of $85 million for the quarter.

There is no clear competitive advantage for the business, margins are low, debt is high, and its growth prospects are also questionable. The company also burned through $279 million during the three-month period ended March 31, over the course of its day-to-day operations, which was a sharp increase from the $178 million it used up in the same period last year.

Ultimately, there isn't much of a reason for the stock's movements. Opendoor has "meme stock" written all over it and while you might think it's heading higher, there's a very real possibility that it ends up crashing.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.