“You get what you pay for” often applies to expensive stocks with best-in-class business models and execution. While their quality can sometimes justify the premium, they typically experience elevated volatility during market downturns when expectations change.
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 is one high-flying stock to hold for the long term and two with big downside risk.
Two High-Flying Stocks to Sell:
Allegro MicroSystems (ALGM)
Forward P/E Ratio: 31.8x
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 Is ALGM Not Exciting?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Already-low operating margin of 2% fell over the last five years, and the smaller profit dollars make it harder to react to unexpected market developments
- Low free cash flow margin of 8.1% declined over the last five years as its investments ramped, giving it little breathing room
At $36.28 per share, Allegro MicroSystems trades at 31.8x forward P/E. To fully understand why you should be careful with ALGM, check out our full research report (it’s free).
First Watch (FWRG)
Forward P/E Ratio: 55.5x
Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ:FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.
Why Does FWRG Fall Short?
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Low returns on capital reflect management’s struggle to allocate funds effectively
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
First Watch’s stock price of $11.92 implies a valuation ratio of 55.5x forward P/E. Check out our free in-depth research report to learn more about why FWRG doesn’t pass our bar.
One High-Flying Stock to Buy:
Humana (HUM)
Forward P/E Ratio: 32.7x
With over 80% of its revenue derived from federal government contracts, Humana (NYSE:HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Why Will HUM Outperform?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 15.1% annual sales growth over the last two years
- Massive revenue base of $145.8 billion gives it meaningful leverage when negotiating reimbursement rates
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
Humana is trading at $406 per share, or 32.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.