Let me show you how it's so easy to be wrong. A friend calls you up and asks for some thoughts on a stock he's about to buy. "What do you think about Baidu.com (BIDU)?" You know that it's China's leading Internet search engine, but that's about it. You want to be more helpful, so you ask for a few seconds to get up to speed. You decide to channel your inner Cramer, pecking the ticker symbol into DailyFinance.com as if you were hosting Mad Money's Lightning Round. "Are you crazy," you fire back when you see that its P/E ratio is 96.4. "The stock's selling for nearly 100 times earnings!" You look around for some "sell, sell, sell" sound effect to trigger, but you suddenly realize that you're not Jim Cramer. That's the good news. Unfortunately, you may have just given your friend some pretty bad investing advice. Cheap is in the Eye of the Beholder It's true that Baidu isn't cheap. However, this is a fast-growing company. The 96.4 you see is a multiple based on last year's earnings. In other words, in this case, it's the current share price divided by the sum of its earnings per share over the four quarters of 2010. Baidu's profitability is roughly doubling these days, so that figure changes dramatically with every passing quarter.
So take one more look at the table above. Do these growth stocks really seem all that expensive? When you factor in their heady growth rates and rosy prospects, yesterday's overpriced growth stocks are tomorrow's bargains. Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Travelzoo. The Motley Fool owns shares of Qualcomm, Apple, and Activision Blizzard, and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Apple, NetEase.com, Baidu, Travelzoo, priceline.com, Ancestry.com, Activision Blizzard, and NVIDIA; writing puts on NVIDIA; creating a synthetic long position on Activision Blizzard; and creating a bull call spread position on Apple.
Two comments. Agree that the new my portfolios format is the opposite of an improvement. And, with Apple, if you back out the cash, which is like 74 billion dollars, the p/e is even lower.
P/E is just one way to evaluate intrinsic value.Also sector analysis and future growth is essential.And cheap can always get cheaper.http://www.makemoneyonlineweblog.comhttp://www.makemoneynewspaper.com
I HAVE BEEN AN AOL SUBSCRIBER FOR 16 YEARS AND NOW YOU COMPLETELY SCREWED UP "MY PORTFOLIOS" BY DE-LISTING SEVERAL SECURITIES I OWN AND WELL AS DELETING MY ABILITY TO CUSTOMIZE MY PORTFOLIO VIEWS. THIS COUPLED WITH YOUR 'LEFT LEANING" HUFFINGTON POST EDITORIAL SLANT IS NOW GOING TO CAUSE ME TO LEAVE AOL.
AGREE
I'M WAITING FOR MY MONEY MARKET MUTUAL FUNDS TO BE DISPLAYED IN THE NEW SET UP. I LIKED THE DAILY GAIN /LOSS RATHER THAN YOUR PRESENT INFORMATION WHICH MEANS NOTHING . FRANK
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