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.
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 three high-flying stocks with big downside risk and some other investments you should consider instead.
Penumbra (PEN)
Forward P/E Ratio: 74.5x
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Does PEN Fall Short?
- Smaller revenue base of $1.33 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 4.8% for the last five years
- Low returns on capital reflect management’s struggle to allocate funds effectively
Penumbra’s stock price of $350.42 implies a valuation ratio of 74.5x forward P/E. To fully understand why you should be careful with PEN, check out our full research report (it’s free).
Repligen (RGEN)
Forward P/E Ratio: 84x
With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ:RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.
Why Is RGEN Risky?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 17.8 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $162.14 per share, Repligen trades at 84x forward P/E. If you’re considering RGEN for your portfolio, see our FREE research report to learn more.
Cognex (CGNX)
Forward P/E Ratio: 38x
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Are We Out on CGNX?
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 12.9 percentage points
- Free cash flow margin dropped by 10.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Cognex is trading at $40.98 per share, or 38x forward P/E. Dive into our free research report to see why there are better opportunities than CGNX.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Growth Stocks for this month. 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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.