"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 with strong fundamentals and two climbing an uphill battle.
Two High-Flying Stocks to Sell:
WD-40 (WDFC)
Forward P/E Ratio: 43.4x
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 Does WDFC Fall Short?
- 6.6% annual revenue growth over the last three years was slower than its consumer staples peers
- Modest revenue base of $603.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- 7.1 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
WD-40’s stock price of $239.12 implies a valuation ratio of 43.4x forward price-to-earnings. If you’re considering WDFC for your portfolio, see our FREE research report to learn more.
Enviri (NVRI)
Forward P/E Ratio: 72.2x
Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.
Why Do We Think NVRI Will Underperform?
- Earnings per share have contracted by 17.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Negative free cash flow raises questions about the return timeline for its investments
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $7.07 per share, Enviri trades at 72.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than NVRI.
One High-Flying Stock to Buy:
Netflix (NFLX)
Forward EV/EBITDA Ratio: 33.1x
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
Why Is NFLX a Good Business?
- Global Streaming Paid Memberships are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Healthy EBITDA margin of 25.7% shows it’s a well-run company with efficient processes, and its operating leverage amplified its profits over the last four years
- Free cash flow margin increased by 18.2 percentage points over the last four years, giving the company more capital to invest or return to shareholders
Netflix is trading at $988.10 per share, or 33.1x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
