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. That said, here are two high-flying stocks expanding their competitive advantages and one with big downside risk.
One High-Flying Stock to Sell:
Amkor (AMKR)
Forward P/E Ratio: 30.1x
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ: AMKR) provides outsourced packaging and testing for semiconductors.
Why Are We Out on AMKR?
- Anticipated sales growth of 10.7% for the next year implies demand will be shaky
- Gross margin of 14.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 2.9%
Amkor is trading at $65.68 per share, or 30.1x forward P/E. To fully understand why you should be careful with AMKR, check out our full research report (it’s free).
Two High-Flying Stocks to Watch:
MACOM (MTSI)
Forward P/E Ratio: 57.4x
Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.
Why Are We Fans of MTSI?
- Annual revenue growth of 29.8% over the past two years was outstanding, reflecting market share gains this cycle
- Demand will likely accelerate over the next 12 months as its forecasted revenue growth of 37.1% is above its two-year trend
- Offerings are mission-critical for businesses and lead to a top-tier gross margin of 55.1%
At $361.10 per share, MACOM trades at 57.4x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
WD-40 (WDFC)
Forward P/E Ratio: 33.3x
Short for “Water Displacement perfected on the 40th try”, WD-40 (NASDAQ: WDFC) is a renowned American consumer goods company known for its iconic and versatile spray, WD-40 Multi-Use Product.
Why Is WDFC Interesting?
- Differentiated product offerings are difficult to replicate at scale and lead to a premier gross margin of 54.9%
- Strong free cash flow margin of 12% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures, and its rising returns show it’s making even more lucrative bets
WD-40’s stock price of $204.18 implies a valuation ratio of 33.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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