Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Don't Be Afraid of Heights: The One Thing You Need to Know About High P/E Ratios

When it comes to price-to-earnings ratios, Motley Fool co-founder and Chief Rule Breaker David Gardner has heard it all, and he has this advice for investors: Don't be afraid of a high P/E!

Remember, a P/E ratio is the multiple of a company's annual profits. According to David, companies with high P/E ratios are simply being rewarded for what the market sees as future profit potential, and if you want to get in on it, you've got to pay up. Oftentimes, inexperienced investors opt for a company with a P/E of seven and steer clear of the one with a P/E of 70, but in so doing, they are missing out on what may turn out to be an explosive growth stock.

David proved this at Motley Fool Stock Advisor when he picked up (Nasdaq: PCLN  ) and (Nasdaq: AMZN  ) -- both sporting rich P/Es at the time -- and rode them way north, right where the market figured they'd go.

So go ahead ... when it comes to P/E ratios, don't be afraid of heights. Watch David's video below to learn more.

For more analysis, visit and are Motley Fool Stock Advisor picks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1355578, ~/Articles/ArticleHandler.aspx, 10/22/2016 2:21:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 17 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AMZN $818.99 Up +8.67 +1.07% CAPS Rating: ****
PCLN $1467.39 Down -0.90 -0.06%
Priceline Group CAPS Rating: ****