Sticker shock can be hard to get over. It’s easy to look at a stock, see a high P/E ratio, and immediately be turned off. A high price-to-earnings means that an investor is shelling out the big bucks to get a piece of the company, maybe more than is warranted. However, paying a high premium for a strong company isn’t necessarily a bad idea. Growing companies can easily appear overvalued at times, but that doesn’t mean they don’t represent a sound investment in the end. As such, here are six companies that are currently plenty expensive, with P/E ratios of at least 50, but have the growth outlooks and operating margins to indicate that they might be smart buys anyways.
Alexion Pharmaceuticals (ALXN)
Alexion is a biopharmaceutical company aimed at developing therapies for life-threatening illnesses. While the sky-high P/E ratio of 0ver 95 could easily scare away investors, it’s also important to note the projections for EPS growth of about 35 percent for the next five years and a debt/equity ratio of zero.
Lululemon Athletica (LULU)
Lululemon certainly isn’t cheap, with a P/E of over 55 and P/C, P/S, and P/FCF numbers that are also high, but the company is also growing fast and appears ready to continue the trend. Lululemon has posted EPS growth of over 140 percent in the last five years and is projected to continue that growth at close to 30 percent over the next five years.
Plains Exploration & Production Company (PXP)
Plains Exploration is an independent oil and gas producer working mainly in the American west. Plains appears to be overpriced in its current state, with a P/E ratio over 60, but the future is projected to be much stronger, with Forward P/E coming in at just over 11.25. This is largely due to strong earnings projections as well as a gross ratio over 70 percent and an operating ratio over 30 percent.
MercadoLibre is an Argentine company that hosts an online commerce platform in Latin America, filling a similar role there to eBay (EBAY). MercadoLibre has more than tripled in size over the last five years, perhaps explaining the company’s currently high share price. However, while the stock is expensive, MercadoLibre is carrying little to no debt, has strong margins, and is project to continue having strong EPS growth for at least the next five years.
Kodiak Oil & Gas (KOG)
Kodiak, an oil and gas drilling and exploration company exploring in the American west, is another example of a company that appears overpriced now but should be on the verge of bringing earnings in line with its price in the future. While P/E currently sits at over 50, but Forward P/E is just over 8.5. This is most likely due to projections for robust EPS growth over the next five years.
InvenSense is a tech company that provides intelligent motion processing solutions through its mixed-signal integrated circuits. The company is currently on a bull run, with share prices jumping over 80 percent in the last year. This has pushed the current P/E into dangerously high territory, but the company also continues to project EPS growth of close to 30 percent over the next five years and boasts an operating margin over 30 percent, giving investors some reasons to consider biting the bullet and accepting the high price to buy in.