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.
Finding the right balance between price and quality can challenge even the most skilled investors. Luckily for you, we started StockStory to help you identify the real opportunities. That said, here are three high-flying stocks where the price is not right and some other investments you should look into instead.
Allegro MicroSystems (ALGM)
Forward P/E Ratio: 51.2x
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?
- Annual sales declines of 13.7% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 10.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Allegro MicroSystems is trading at $25.05 per share, or 51.2x forward P/E. If you’re considering ALGM for your portfolio, see our FREE research report to learn more.
AeroVironment (AVAV)
Forward P/E Ratio: 40.1x
Focused on the future of autonomous military combat, AeroVironment (NASDAQ: AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.
Why Are We Cautious About AVAV?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.5 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 24.6 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
AeroVironment’s stock price of $181.01 implies a valuation ratio of 40.1x forward P/E. Check out our free in-depth research report to learn more about why AVAV doesn’t pass our bar.
UL Solutions (ULS)
Forward P/E Ratio: 41.1x
Founded in 1894 as a response to the growing dangers of electricity in American homes and businesses, UL Solutions (NYSE: ULS) provides testing, inspection, and certification services that help companies ensure their products meet safety, security, and sustainability standards.
Why Do We Think Twice About ULS?
- 4.3% annual revenue growth over the last three years was slower than its business services peers
At $71.82 per share, UL Solutions trades at 41.1x forward P/E. Dive into our free research report to see why there are better opportunities than ULS.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
