Relying on a single metric misses out on the bigger picture

Too few metrics

 

If you focus only on a single aspect of a given company, such as its price-to-earnings ratio, you could miss out on the bigger picture. Check out the different ratings our CAPS community has assigned to stocks with similarly low P/Es:

 

Company
CAPS Stars (out of five)
P/E

 

Noble (NYSE: NE)
*****
7

 

Merck (NYSE: MRK)
****
10

 

Garmin
***
12

 

Qwest Communications (NYSE: Q)
**
10

 

 

Data: Motley Fool CAPS.

 

 

A closer look at these companies' other metrics would likely reveal

• varying debt and cash levels,
• growth rates,
• profit margins, and
• competitive advantages.

It can be useful to seek out low-P/E stocks, since they may have been overly punished and due to rebound. But a low P/E can't and shouldn't be your sole criteria for making an investment.

 

http://www.fool.com/investing/value/2010/01/19/4-ways-to-screw-up-your-portfolio.aspx