Unformatted text preview: even lower than they should have been). These non-tech companies ended up doing much better. Justified Ratios for Individual Stocks How much should an investor pay for a large growth stock? 5 factors that determine a justified P/E ratio: 1. investor’s required rate or return 2. rate of earnings growth 3. the number of years that the earnings growth can be maintained. 4. the P/E ratio at maturity 5. the dividend yield Conclusion Diversification is the key to success. No good stock is worth even a 100+ P/E ratio. But should not be too cautious, people who after the 1970’s bubble said they would never pay for a stock above a P/E ratio of 30 have missed many winners....
View Full Document
- Spring '08
- Dividend, Financial Ratio, Dividend yield, P/E ratio, technology stocks, high P/E ratios