4 High P/E Stocks With Great Growth Prospects

The year 2016 saw a gloomy start plagued by several headwinds of last year’s global oil crisis. Investors are still skeptical about the current state of market affairs which is being dictated by the movement in crude prices. With Brent and WTI crude recently breaching the $50 per barrel mark, the market seems well poised for resurgence.

The Dow Jones Industrial Average (DJI) and the Standard & Poor’s 500 (S&P 500) has improved significantly from Feb 11,2016– when Dow plummeted to its lowest level since Feb 6, 2014 and the S&P 500 fell to its lowest level since Apr 11, 2014.  Since then, the Dow and the S&P 500 have improved 14.6% and 15.5%, respectively.

Under the present market setting, which is showing signs of revival, what should be the winning strategy?

Fundamentals to Consider Amid Recovery

The increasing market volatility makes the momentum strategy highly risky for investors, while value investing does not find many suitors in the current market scenario.

However, the story is different for high P/E stocks which are worth buying despite their high prices. Generally, when we are looking at the price-to-earnings (P/E) ratio, we would prefer to see a lower number for a company that we might invest in. That’s because it’s a basic measure of how much we are paying for $1 worth of earnings. However, the only hitch in this old school of investing is that P/E ratio hardly conveys a company’s future earnings growth.

Hence, under the existing circumstances, it remains crucial for investors to avoid chasing trends blindly. It is likely for certain companies to have high P/E ratios and not be a poor investment choice. Suppose, an investor thinks of buying a stock with a P/E ratio of 30. This means that he is willing to spend $30 for only $1 worth of earnings as he expects earnings of the company to grow at a faster pace in the future owing to strong fundamentals.

Therefore, we believe that a thorough analysis of the high-P/E company’s growth potential is vital to determine if the particular stock will turn out to be a good investment or not.

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