When a sector gets discovered we see a sudden rush of money getting into that sector. The reason is that the earnings of the companies in that sector are likely to grow faster and it makes sense to pay more for a stock whose earnings grow at a faster rate. Now, how much more should be paid is the question. One of the ways is to determine by dividing a company’s PE multiple by its growth ratio. Look carefully at the PEG ratio which in the long-term indicates many things in a better manner than most other alternatives like PE which tend to create a mirage of value. By focusing on the PEG ratio, investors can better differentiate between genuinely valuable growth opportunities and those stocks that appear cheap but are cheap for a reason.
Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.