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.
Finding the right balance between price and quality can challenge even the most skilled investors. Luckily for you, we started StockStory to help you identify the real opportunities. That said, here are three high-flying stocks with big downside risk and some other investments you should consider instead.
Power Integrations (POWI)
Forward P/E Ratio: 53.1x
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ:POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Do We Steer Clear of POWI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last five years
- Estimated sales growth of 6% for the next 12 months is soft and implies weaker demand
- Operating margin declined by 22.6 percentage points over the last five years as its sales cratered
Power Integrations is trading at $72.50 per share, or 53.1x forward P/E. Dive into our free research report to see why there are better opportunities than POWI.
Lincoln Educational (LINC)
Forward P/E Ratio: 56.8x
Established in 1946, Lincoln Educational (NASDAQ:LINC) is a provider of specialized technical training in the United States, offering career-oriented programs to provide practical skills required in the workforce.
Why Do We Avoid LINC?
- Sluggish trends in its enrolled students suggest customers aren’t adopting its solutions as quickly as the company hoped
- Cash-burning history makes us doubt the long-term viability of its business model
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $40.37 per share, Lincoln Educational trades at 56.8x forward P/E. Read our free research report to see why you should think twice about including LINC in your portfolio.
Lucky Strike (LUCK)
Forward P/E Ratio: 35.3x
Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE:LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.
Why Is LUCK Risky?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Lucky Strike’s stock price of $7.93 implies a valuation ratio of 35.3x forward P/E. To fully understand why you should be careful with LUCK, check out our full research report (it’s free).
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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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.