Deciding Which Stocks Are a Bargain
With financial woes circling the world, there are bound to be bargain hunters looking to pick up a stack of shares at low prices, but how can you be sure when you’re actually getting a bargain? Some tips from Carolyn Bigda can help you avoid getting burned:
- Check the forward P/E of a stock - compare this to similar companies or the industry benchmark, and you want a ratio that is lower than average (but not super low)
- Check the trailing P/E for the same kind of ratio as the forward P/E - so that you can be more certain that the company was operating similarly before any stockmarket crash
- Check the price-to-cash ratio and compare it with similar companies again, and again look for a ratio that’s just a bit lower than average
- Check the company’s balance sheet and figure out the stability by dividing the total assets by total equity - if the ratio is 2 or lower then you’re on a good thing
- Check the news - because of course, all of the good ratios in the world mean nothing if there’s some scandal or huge lawsuit hitting the company whose stock you want to buy.
This entry was posted on Monday, October 27th, 2008 at 5:04 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
