Many analysts still recommend stocks that trade
at higher than average P/Es if they expect earnings to grow at
a rate that makes up for the higher price. To illustrate this
idea, analysts sometimes use a multiple called price-to-earnings-growth
(PEG), which is the
P/E ratio
divided by the likely rate of earnings growth.
Add it up
Earnings are also known as net income, and they're
the company's revenues from sales minus expenses. Although this
sounds straightforward, companies can calculate expenses and revenues
in significantly different ways.
For instance, some calculations, such as the popular
EBITDA (earnings before interest, taxes, depreciation, and amortization)
— also known as operating earnings — leave out many
accounting expenses that can seriously affect a company's profits.
There's also no set definition or standard for what items should
be included in a company's reported operating earnings.
Sam Stovall,
Chief Investment Strategist at Standard & Poor’s
Earnings are also known as net income, and they're
the company's revenues from sales minus expenses. Although this
sounds straightforward, companies can calculate expenses and revenues
in significantly different ways.
For instance, some calculations, such as the popular
Sam Stovall, 