Morningstar looks at growth stocks

[4/29/06] Morningstar's five principles on investing in growth stocks

[2/4/06] Morningstar focuses on three factors when looking for growth ideas.

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[11/22/05] Morningstar studied the return earned by investors in a sample of 50 widely known growth stocks over periods starting in 1990, 1995, and 2000, in an attempt to increase their insight into growth stock valuation.

"Of course, there's no chance that we'll abandon our preference for investing with a margin of safety--this remains a core Morningstar principle. In our view, one of the most frequent investment sins is overpaying for growth. It's entirely unnecessary, as an informed investor is well positioned to determine when growth is attractively priced--and when it isn't. Margins of safety remain vital, but when it comes to the best companies, there's often more to consider than most investors realize."

... "while many investors shy away from stocks with high P/E ratios, our research concludes that this isn't always wise. And while P/E ratios for growth stocks must eventually decline, this can take years to happen--by which time the "E" can be several times larger. For example, investors who bought Qualcomm QCOM at a P/E of 78 in 1995 have earned tremendous results. And as we illustrate, those investors could have paid up to a P/E of 577 before they would have underperformed the S&P 500. Similarly, investors could have happily bought Starbucks SBUX at 62 times earnings (maximum P/E 298) or Fastenal FAST at 41 times earnings (maximum P/E 80) and done magnificently. For the right company, growth is most assuredly worth "paying up for."