High Flier

What Is a High Flier?

The term "high flier" alludes to a company that has seen its valuation rise substantially relative to its peers. Typically utilized comparable to companies have risen quickly, showing a relating rise in valuation metrics like its price to earnings (PE) ratio.

On occasion, the term can have a negative or distrustful meaning, raising uncertainty regarding whether the recent rise will demonstrate sustainable over the long haul.

How High Fliers Work

It has forever been the case that a few stocks perform obviously better than others. In the late 1990s, for example, companies whose business were related to the then-beginning technology of the Internet saw fleeting rises in their valuations as compared to companies in more traditional "Old Economy" industries. In different cases, a few individual companies —, for example, Warren Buffett's Berkshire Hathaway (BRK) — show sensational and consistent growth throughout the long term, obscuring that of the overall market.

Depending on the unique situation, the term "high fliers" may carry the ramifications that the outcome of the company being referred to is due to unsustainable factors, for example, a market bubble. This proved to be true comparable to the greater part of the high fliers during the dotcom bubble, albeit a portion of the companies commended in that period ended up finding success over the long haul. Investors who utilize the term thusly may wish to express distrust about the high prices being paid by investors relative to fundamental metrics, for example, the company's earnings per share (EPS) or book value.

Investors wishing to judge for themselves whether the outcome of a high flier is sustainable have numerous insightful devices at their disposal. As well as utilizing financial ratios, for example, PE, price to book value (P/BV), and price to free cash flow (P/FCF), methods, for example, discounted cash-flow analysis (DCF) or reproduction value analysis can likewise demonstrate supportive.

Real World Example of a High Flier

Yet again toward the finish of 2020, technology companies are at the apex of the stock market in terms of valuations, with the five of the main six biggest companies all hailing from that sector. Specifically, these are: Microsoft (MSFT), with a market capitalization of ~$1.36 trillion; Apple (AAPL), at ~$1.29 trillion; Amazon (AMZN), at ~$1.23 trillion; Alphabet (GOOG), at $919 billion; and Meta (META), formerly Facebook, at ~$584 billion.

Yet albeit these companies are prominent for their size, they are not especially remarkable according to a valuation perspective. Together, their average PE ratio is around 41 when calculated in light of their trailing a year's (TTM) earnings. Conversely, the Cyclically Adjusted PE Ratio for the S&P 500 was just north of 30 as of January 30th, 2020.

Assuming we limit our utilization of the term "high flier" to allude just to companies that are luxuriously valued according to a PE perspective, and assuming that we incorporate just companies with a market capitalization of $50 billion or greater, then, at that point, we are left with an altogether different rundown of high fliers. This incorporates Advanced Micro Devices (AMD), with a PE of approximately 120; Zoom Video (ZM), with a PE of 269; and Netflix (NFLX), with a PE of just north of 80; among others.

Highlights

• High flier is a conversational term used to portray companies with especially high valuations.
• It is sometimes utilized in a suspicious fashion to allude to companies that are viewed as overvalued.
• High fliers have forever been a part of the stock market, and are many times the subject to vivacious discussion among investors.