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.
Separating true intrinsic value from speculation isn’t easy, especially during bull markets. That’s where StockStory comes in - to help you find high-quality companies that will stand the test of time. That said, here is one high-flying stock expanding its competitive advantage and two with big downside risk.
Two High-Flying Stocks to Sell:
Microchip Technology (MCHP)
Forward P/E Ratio: 52x
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Is MCHP Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last five years
- Operating margin declined by 11.6 percentage points over the last five years as its sales cratered
- Free cash flow margin dropped by 16 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Microchip Technology is trading at $59.18 per share, or 52x forward P/E. To fully understand why you should be careful with MCHP, check out our full research report (it’s free).
Grid Dynamics (GDYN)
Forward P/E Ratio: 33.1x
With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ: GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.
Why Does GDYN Worry Us?
- Revenue base of $371.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 8.5% annually while its revenue grew
- Push for growth has led to negative returns on capital, signaling value destruction
Grid Dynamics’s stock price of $12.50 implies a valuation ratio of 33.1x forward P/E. Check out our free in-depth research report to learn more about why GDYN doesn’t pass our bar.
One High-Flying Stock to Buy:
Microsoft (MSFT)
Forward P/S Ratio: 11.2x
Short for microcomputer software, Microsoft (NASDAQ: MSFT) is the largest software vendor in the world with its Windows operating system, Office suite, and cloud computing services.
Why Are We Bullish on MSFT?
- Microsoft is one of the great brands not just in tech but all of business. It produces mission-critical software and bundles it together, resulting in cream-of-the-crop gross margins.
- The company's elite unit economics lead to robust profit margins that improve over time. This speaks to the scale advantages and operating efficiency across its diverse portfolio, which spans everything from Office and Azure to Minecraft.
- Microsoft has a virtuous cycle of returns. Its dominant market position enables it to generate strong free cash flow, and it reinvests these funds into promising ventures that further strengthen its competitive moat.
At $460.25 per share, Microsoft trades at 32.5x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
