Expensive stocks often command premium valuations because the market thinks their business models are exceptional. However, the downside is that high expectations are already baked into their prices, leaving little room for error if they stumble even slightly.
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 where the price is not right.
Two High-Flying Stocks to Sell:
Richardson Electronics (RELL)
Forward P/E Ratio: 271.5x
Founded in 1947, Richardson Electronics (NASDAQ: RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.
Why Do We Think RELL Will Underperform?
- Sales tumbled by 10.8% annually over the last two years, showing market trends are working against its favor during this cycle
- Low free cash flow margin of -0.8% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Richardson Electronics’s stock price of $11 implies a valuation ratio of 271.5x forward P/E. If you’re considering RELL for your portfolio, see our FREE research report to learn more.
Stratasys (SSYS)
Forward P/E Ratio: 34.9x
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Should You Sell SSYS?
- Sales tumbled by 1.7% annually over the last five years, showing market trends are working against its favor during this cycle
- Issuance of new shares over the last five years caused its earnings per share to fall by 13.6% annually, even worse than its revenue declines
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $11.09 per share, Stratasys trades at 34.9x forward P/E. Read our free research report to see why you should think twice about including SSYS in your portfolio.
One High-Flying Stock to Buy:
Datadog (DDOG)
Forward P/S Ratio: 15.8x
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ: DDOG) is a software-as-a-service platform that makes it easier to monitor cloud infrastructure and applications.
Why Should You Buy DDOG?
- Customers view its software as mission-critical to their operations as its ARR has averaged 27.2% growth over the last year
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- DDOG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Datadog is trading at $146.87 per share, or 15.8x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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