Expensive stocks typically earn their valuations through superior growth rates that other companies simply can’t match. The flip side though is that these lofty expectations make them particularly susceptible to drawdowns when market sentiment shifts.
Determining whether a company’s quality justifies its price causes headaches for nearly all investors, which is why we started StockStory - to help you separate the real opportunities from the speculative ones. Keeping that in mind, here is one high-flying stock with strong fundamentals and two climbing an uphill battle.
Two High-Flying Stocks to Sell:
Allegro MicroSystems (ALGM)
Forward P/E Ratio: 53.4x
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Do We Steer Clear of ALGM?
- Sales tumbled by 7.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 19.8% annually while its revenue grew
- 9.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Allegro MicroSystems is trading at $26.25 per share, or 53.4x forward price-to-earnings. To fully understand why you should be careful with ALGM, check out our full research report (it’s free).
Bowlero (BOWL)
Forward P/E Ratio: 42.4x
Operating over 300 locations globally, Bowlero (NYSE: BOWL) is a contemporary bowling company merging classic lanes with entertainment and deluxe food offerings.
Why Are We Out on BOWL?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $11.80 per share, Bowlero trades at 42.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than BOWL.
One High-Flying Stock to Buy:
Celsius (CELH)
Forward P/E Ratio: 30.9x
With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ: CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.
Why Will CELH Outperform?
- Impressive 62.8% annual revenue growth over the last three years indicates it's winning market share
- Earnings growth has trumped its peers over the last three years as its EPS has compounded at 211% annually
- Free cash flow margin expanded by 8.3 percentage points over the last year, providing additional flexibility for investments and share buybacks/dividends
Celsius’s stock price of $27.15 implies a valuation ratio of 30.9x forward price-to-earnings. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
