Course 405: Classic-Growth Stocks
How Do the Stock's Price Valuations Compare with Those of Similar Firms?
In this course
1 Introduction
2 How Fast Has It Been Growing?
3 What Are the Trends in Growth Rates?
4 Where Is Growth Coming From?
5 Is Profitability Keeping Pace with Growth?
6 What Is the Company Doing with Its Profits?
7 Is the Company's Debt Leverage Increasing?
8 How Has the Stock Performed?
9 How Do the Stock's Price Valuations Compare with Those of Similar Firms?
10 Conclusion: Quality versus Price

While classic-growth stocks typically don't command the sky-high valuations of aggressive growers, the market usually tags a premium on them because of their reliability. Looking at a stock's valuations relative to other stocks of the same type can be helpful in gauging the relative value of the stock. By traditional valuation measures such as price/earnings and price/sales ratios, McDonald's was somewhat on the pricey side at the end of 1999 compared with other classic-growth firms. To see how expensive McDonald's is relative to its growth rates, check its PEG ratio, or price to earnings growth, which indicates how much investors are paying for growth. This stock's PEG of 2.6 is also high for the classic-growth group, indicating that the market is expecting McDonald's to grow faster in the future than it has the past few years.

Next: Conclusion: Quality versus Price >>


Search
Print Lesson |Feedback
Del.icio.us Del.icio.us | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.