Friday, 25 June 2010

Comparing the P/E to Growth Rates


Company A's forward P/E is 7.5, while Company B's remains 7.

Remember, you are more concerned with what Company A is going to do - keep growing while Company B has apparently run out of gas - than what it has already done, and you don't want to pay nearly the same amount for no earnings growth as you would for a nice 15% growth of Company A.

The above is the answer to the question posed here:

Comparing P/E ratios to growth rates can be significantly more useful than simply comparing two companies' P/E ratios. Why?

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