Making money: What the experts say

Is that pricey stock promising?; Reverse mortgages are back; True values investing

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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