Zacks on growth and value

* Did you know that stocks with 'just' double-digit growth rates typically outperform stocks with triple-digit growth rates?
* Did you also know that stocks with crazy high growth rates test almost as poorly as those with the lowest growth rates?

Did your last loser have a spectacular growth rate?

If so, and it still got crushed, would you have picked it if you knew that stocks with the highest growth rates have spotty track records?

It seems logical to think that companies with the highest growth rates would do the best. But it doesn't always turn out to be the case.

One explanation for this is that sky high growth rates are unsustainable. And the moment a more normal (albeit still good) growth rate emerges, the stock gets a dose of reality as well.

Instead, I have found that comparing a stock to the median growth rate for its industry is the best way to find solid outperformers with a lesser chance to disappoint.


* Did you know that the top performing stocks each year will usually see their P/E ratios more than double from where it started?
* Did you also know that, historically, most of the best performers began their runs with P/Es over the 'magic' number of a P/E ratio of 20?
* And did you know that an even greater majority of the top performers finished with P/E ratios of well over 20?

If you only confine yourself to stocks with P/Es under 20, you'll be consistently keeping yourself from getting in on some of the best performing stocks each year.

Moreover, knowing that the top performers will typically see their P/E ratios rise (more than 100%) during their move, you'd be getting out the moment those stocks get above 20.

So many people I speak to believe that a P/E ratio of less than 20 is the key to success. But statistics prove otherwise.

Don't get me wrong, lower P/E ratios in general are a good thing. But since different industries have different P/E ratios, it makes sense to do relative comparisons.