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Senior Analyst Anand Chokkavelu responds to the question of how investors should take the price-to-earnings ratio into account when gauging a company's growth value. The P/E ratio is used as an initial way to determine the valuation of a stock, or how cheap it is.

You'd expect to pay more for a company that's going to grow more in the future, while you want to pay less for one without as much growth potential. That's something the P/E ratio doesn't take into account. A better metric to look at is the PEG ratio, for for price-to-earnings growth. Using Amazon.com a(NASDAQ:AMZN)

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