Is that pricey stock promising?
Deciding whether an expensive stock is worth buying takes some research, said Jack Hough in The Wall Street Journal. Investors should look at three factors: “robust growth, sustainable growth, and underappreciated growth.” Robust growth is easy to spot: “Just look at earnings per share.” For sustainable growth, consider a company’s return on invested capital. Returns “in the 13 to 16 percent range are ordinary,” while those above 30 percent “are excellent,” and some companies, such as travel broker Priceline​.com, are doing even better than that. The trickiest part is determining whether the stock price is still reasonable. One option is to compare price-to-earnings ratios with projected growth; the closer they are, the better the deal. A company selling for 21 times earnings with 23 percent projected growth is a better buy than one selling for 66 times earnings and 35 percent growth.
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