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. That said, here are three high-flying stocks facing an uphill battle and some alternatives you should consider instead.

Palo Alto Networks (PANW)

Forward P/S Ratio: 22.6x

Founded in 2005 by security visionary Nir Zuk who sought to reimagine firewall technology, Palo Alto Networks (NASDAQ: PANW) provides AI-powered cybersecurity platforms that protect organizations' networks, clouds, and endpoints from sophisticated threats.

Why Does PANW Fall Short?

1. High servicing costs result in a relatively inferior gross margin of 70.4% that must be offset through increased usage
2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
3. Operating margin declined by 7.4 percentage points over the last year as it scaled

Palo Alto Networks’s stock price of $355.25 implies a valuation ratio of 22.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PANW.

Krispy Kreme (DNUT)

Forward P/E Ratio: 49x

Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.

Why Do We Think DNUT Will Underperform?

1. Muted 6.2% annual revenue growth over the last seven years shows its demand lagged behind its restaurant peers
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $3.37 per share, Krispy Kreme trades at 49x forward P/E. Read our free research report to see why you should think twice about including DNUT in your portfolio.

Illumina (ILMN)

Forward P/E Ratio: 37.4x

Pioneering the ability to read the human genome at unprecedented speed and affordability, Illumina (NASDAQ: ILMN) develops and sells advanced DNA sequencing and microarray technologies that allow researchers and clinicians to analyze genetic variations and functions.

Why Is ILMN Not Exciting?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Earnings per share fell by 3% annually over the last five years while its revenue grew, partly because it diluted shareholders
3. Push for growth has led to negative returns on capital, signaling value destruction

Illumina is trading at $206.94 per share, or 37.4x forward P/E. To fully understand why you should be careful with ILMN, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.