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 with strong fundamentals and one with big downside risk.
One High-Flying Stock to Sell:
Kadant (KAI)
Forward P/E Ratio: 32.1x
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Hesitant About KAI?
- Muted 3.8% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 3.6% annually while its revenue grew
- Free cash flow margin shrank by 3.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Kadant’s stock price of $327.54 implies a valuation ratio of 32.1x forward P/E. Dive into our free research report to see why there are better opportunities than KAI.
Two High-Flying Stocks to Buy:
Broadcom (AVGO)
Forward P/E Ratio: 32.4x
Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ: AVGO) is a semiconductor conglomerate spanning wireless communications, networking, and data storage as well as infrastructure software focused on mainframes and cybersecurity.
Why Are We Bullish on AVGO?
- Annual revenue growth of 33.6% over the past two years was outstanding, reflecting market share gains this cycle
- Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 76.4%
- Robust free cash flow margin of 40.1% gives it many options for capital deployment
Broadcom is trading at $330.13 per share, or 32.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Vertiv (VRT)
Forward P/E Ratio: 34.6x
Formerly part of Emerson Electric, Vertiv (NYSE: VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Will VRT Outperform?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 21% over the past two years
- Free cash flow margin jumped by 7.9 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Rising returns on capital show management is finding more attractive investment opportunities
At $183.75 per share, Vertiv trades at 34.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
