Tells

Good poker players know that others at the table give off tells, which can be used to acquire additional information on their strength. Companies are the same way, and there’s a wealth of information available that will tell you more about the company. One important metric that was used in the last newsletter is price to earnings (P/E) ratio, which is a pretty self-explanatory comparison of a stock’s current price to its earnings per share, either past or expected, giving trailing and forward P/E ratios, respectively. P/E ratios can be used to compare similar stocks, with low P/E ratios offering a better value. An extension of the P/E ratio that can give a better overall picture of a stock’s prospects is the price-to-earnings-to-growth (PEG) ratio, which is just the P/E ratio over the expected earnings growth rate percentage. This means a low PEG ratio is desirable, with less than 1 representing a growing company that is still a good value, but over 2 being an overpriced or slowly growing company. We’ll cover more tell-tale signs that can be used to glean information about companies in future newsletters, so stay tuned.