“$500 a share? Must be overvalued.”

This is an instinctive response. I hear all the time from retail traders and professionals who should know better. They mix up price and value, forgetting that the two are rarely the same. A high price tag doesn't mean something is too expensive, just like a low price tag doesn't suggest it's inexpensive.

Last week, I laid out how cheap can be a trap and how a low price often signals broken businesses and false hope. However, it's important to remember that a high price tag can also be a gift, provided you understand its hidden value. Some of the most successful stocks in history looked “too pricey” all the way up. Yet they kept climbing not because the market was irrational, but because the business deserved it. The real edge comes from knowing when “expensive” is a misread by the crowd.

The Truth About 'Expensive' Stocks

Just because a stock trades at a high price or has a high multiple doesn't always mean it's overvalued. In many cases, this indicates that the market possesses information that others do not yet have. Buffett stated, "It's much better to buy a great company at a fair price than a fair company at a great price." He wasn't talking about following the buzz; he was talking about buying good things. That's what this blog is all about. This venture is not about investing in fads or trendy stocks. This is not about investing in speculative, flashy stocks. However, businesses that endure possess strong cash flows, pricing power, and the type of momentum that arises from executing strategies effectively rather than relying on emotions.

What Separates Winners From Pricey Traps

A) Sustainable Competitive Advantage

The best “expensive” stocks don’t just have outstanding numbers; they have defensible moats. That means pricing power, brand equity, intellectual property, or network effects that competitors can’t touch.

Take (MC.P.DX) you’re not just buying handbags, you’re buying status. Alternatively, a stronghold of loyalty and scale can be achieved through (COST). (NVDA) isn’t “just a chip company”; it owns the ecosystem. In these cases, the price isn’t inflated; it’s earned. And the multiple reflects a business that’s structurally difficult to disrupt.

B) Strong Free Cash Flow and Return on Invested Capital (ROIC)

If you pay a premium, the company better print cash and use it wisely. I’ve written before: ROIC is the true test of quality. A business growing earnings while sustaining high ROIC is creating real value. That’s rare. And it is worth paying for. Look at (V), with an ROIC consistently above 20%. Investors balked at its valuation for years. Meanwhile, it quietly compounded and crushed the index. A high multiple doesn’t matter when reinvestment fuels even greater returns.

B) Catalysts That Keep Re-Rating the Stock

Growth isn’t a one-time event; it’s a sequence. High-multiple stocks can keep looking cheap if margins expand, new markets open, or innovation compounds. (AMZN) in the 2010s traded at ridiculously high multiples. However, the narrative changed as new factors emerged: AWS, logistics scale, and the Prime ecosystem. Each was a new catalyst; the market underpriced it until it didn’t. Great companies stay “expensive” because they keep earning the right to be.

What Investors Get Wrong About High Multiples

One number, the P/E ratio, traps too many investors. Investors cling to the P/E ratio as if it's indisputable, believing that if it exceeds 25x, it must be excessively costly. But investing isn’t about static metrics. It’s about dynamic businesses. What that P/E doesn’t tell you is how long a company can maintain its edge. This concept is referred to as the duration of competitive advantage, which is the primary reason some stocks justify their high price-to-earnings multiples. A company with five years of dominance might deserve 15x. Does a company with 20 years of dominance merit a higher price? 30x might be cheap. But you won’t see that in the spreadsheet. You see it in the business model, the customer loyalty, and the management decisions that compound quietly. Think of it like this: a Ferrari costs more than a Ford Focus because it performs better, lasts longer, and does something others can’t. You’re not paying for the frame; you’re paying for the experience. The same logic applies to stocks. Priced for excellence, the right expensive stock delivers it. Understanding the distinction between a luxury vehicle and a flashy lemon is crucial.

How To Spot The Winners (And Avoid The Fakes)

• Check FCF Growth and Margin Trends

  Revenue growth is easy to find. Profitable growth? Not so much.

  Look for businesses expanding free cash flow faster than revenue—and improving margins while they do it. Real value creation occurs there.

• Look for Moats, Not Just Stories

  A story can move stocks. A moat keeps it there.

  Ask: What stops competitors from eating their lunch? Is it brand, scale, tech, distribution, or switching costs? If there’s no moat, don’t pay up.

• Use Valuation in Context

  A 35x stock might be cheap if it’s growing at 30% annually with a long runway.

  Does a 10x stock exhibit stagnant growth and lack a driving force? That’s dead money. Multiples only matter if the business keeps earning them.

• Track Insider Confidence

  Are insiders buying? Holding? Selling?

  The strong conviction among insiders at elevated prices is significant. It means they believe this thing has legs.

See What The Market Is Missing

This is where I live. Hidden spin-offs. Misunderstood IP. The market hasn't yet priced in the optionality. Edge comes from looking where others aren’t and seeing what others won’t. The Bottom Line: Pay Up For The Right Reasons Occasionally, the market makes an accurate assessment. A premium valuation isn’t always irrational; it’s often a reflection of quality, consistency, and future potential the average investor can’t see. However, this is where the opportunity presents itself: on occasion, even the premium may not be sufficiently high. That’s where we work, where profound analysis, catalyst identification, and independent thinking uncover stocks the crowd misjudges. It’s not about chasing price. Understanding the reasons behind a stock's current price and determining whether the underlying business can continue to grow from this point is crucial. When that answer is yes, the multiple becomes noise. The crowd often fears what looks expensive. But if you know how to read the signs, you’ll see what they don’t.

Expensive isn’t a ripoff when it’s still undervalued by time.