In This Article:
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 are two high-flying stocks expanding their competitive advantages and one climbing an uphill battle.
One High-Flying Stock to Sell:
Walmart (WMT)
Forward P/E Ratio: 30.5x
Known for its large-format Supercenters, Walmart (NYSE:WMT) is a retail pioneer that serves a budget-conscious consumer who is looking for a wide range of products under one roof.
Why Does WMT Worry Us?
-
Annual sales growth of 5.4% over the last five years lagged behind its consumer retail peers as its large revenue base made it difficult to generate incremental demand
-
Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 24.6%
-
Operating margin of 4.2% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
Walmart is trading at $86.66 per share, or 30.5x forward price-to-earnings. To fully understand why you should be careful with WMT, check out our full research report (it’s free).
Two High-Flying Stocks to Buy:
Wingstop (WING)
Forward P/E Ratio: 52x
The passion project of two chicken wing aficionados in Texas, Wingstop (NASDAQ:WING) is a popular fast-food chain known for its flavorful and crispy chicken wings offered in a variety of sauces and seasonings.
Why Are We Backing WING?
-
Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 19.3% over the past two years
-
Healthy operating margin of 25.6% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs
-
Robust free cash flow margin of 17.2% gives it many options for capital deployment
Wingstop’s stock price of $231.30 implies a valuation ratio of 52x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
American Superconductor (AMSC)
Forward P/E Ratio: 40.2x
Founded in 1987, American Superconductor (NASDAQ:AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.