High Flier

A High Flier is a stock that has seen its share price - and subsequently its valuation - rise to high multiples on metrics such as current earnings and current revenue. Usually, the rise will happen quickly, with the stock well outpacing the gains in the overall market during the same time period. Higher levels of volatility are usually found in high-flying stocks to go along with frequent spikes in trading volume.

Many internet stocks were high fliers in the late 1990s, even though most had never turned a net profit. Investors were sold on the story of what kind of money the companies could earn in the future based on the ultra-rapid growth rates seen at the time.

Many high-flying stocks tumble quickly; expectations can get well ahead of actual revenue and profit; at the slightest disappointment, short-term investors leave the stock in droves, sending shares plummeting.

High flyers have been around since shares were first sold by The Dutch East India Co. in the 1600s, in the world's first IPO. And indeed for some years, the shares were high fliers, playing an integral role in modern history's first market crash.  It's worth noting that In 1634, the company's ships carrying tulip bulbs set off the infamous tulip bulb craze that resulted in a market crash. That period saw a violent whipsaw in its share price—up 1,200% from the IPO price and back down to 300% from the IPO price.

Investors by definition flock to buy the shares of high fliers. Unfortunately, too many buy them when much of the high flying is done only to watch their investment settle back to earth. It's often a case of where by the time a retail investor hears about something, it's too late.

That's not to say there's no opportunities in high fliers. Shares of Amazon started at $1.73 in 1997 and moved steadily upward for the next decade, but it wasn't until around 2008 when they become high fliers, soaring from around $50 to $1,580 in 2018. That's a decade, arguably two decades, when investors profited handsomely from investing in this high flier.

There are some metrics to look for when considering these investments. First is a history of earnings. Beware shares of companies that have never made any money. Look for cash flow in the latest quarter that was at least equal to or greater than the 5-year average cash flow per common share, an encouraging trend.  Look for increasing margins; this means the company is getting more efficient.