Everyone wants a bargain, but some bargains can cost you. In fact, they can hoover away thousands of dollars in lost profits and years of your time… time spent waiting… and waiting… and waiting some more for these bargain stocks to finally realize their potential. Oh, and did I mention, that’s only IF they realize their potential, which is by no means guaranteed.
Dr. Bart DiLiddo, founder of VectorVest, writes about his own problems with P/E ratios and what he did to solve them.
“My ability to make money in the stock market improved dramatically after I wrote my formulas for assessing stock value and risk back in 1978. I never had much luck picking stocks by using P/E ratios. They were all over the place and there wasn’t any way to know if a stock’s P/E ratio was fair or not. I learned that some analysts liked to compare the P/E ratio to earnings growth as a metric, but even that wasn’t good enough for me. So I continued to compare Price to Value for several years and did well, except there was one stock that bugged me… Walmart (WMT).