Valuation of Stocks

What you pay for growth in stocks does matter; valuation still remains important. During the late 1990s investors chased high flying tech stocks right off the P/E charts abandoning more reasonably valued stocks in other sectors.You must judge the likely sustainability of earnings and revenue acceleration, potential price appreciation is greatest when a company’s stock price does not fully reflect its future earnings power. Therefore, it is best to search for reasonably valued stocks with improving fundamentals.

When you see extremely high P/E ratios it is considered a growth company. You must examine the company closely before investing in P/Es that are out of whack with the overall market.

Written by mike on July 28th, 2006 with 3 comments.
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