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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Friday, July 28, 2006

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.


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