1 High-Flying Stock on Our Buy List and 2 to Turn Down

"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?

1. 6.6% annual revenue growth over the last three years was slower than its consumer staples peers

2. Modest revenue base of $603.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies

3. 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. Dive into our free research report to see why there are better opportunities than WDFC .

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?

1. 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

2. Negative free cash flow raises questions about the return timeline for its investments

3. 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. To fully understand why you should be careful with NVRI, check out our full research report (it’s free) .

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?

1. 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

2. 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

3. 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