Ask a Fool: What Do You Need to See to Not Worry About P/E Ratios?

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser and Motley Fool Stock Advisor analyst Brendan Mathews take a question from a reader who asks: " When a company has a triple-digit (or N/A) price-to-earnings ratio, such as  (NASDAQ: AMZN  ) or LinkedIn  (NYSE: LNKD  ) , what do you need to see from it to make you not worry about value?"

Brendan points out that for high price-to-earnings stocks, much of the value of the company is based on its future earnings. As such, he looks for three key things from those types of stocks: a large market opportunity and a high level of sales growth, a compelling and disruptive business model, and a crack management team. Jason agrees, and he also likes to look at cash flow, as opposed to earnings. Both Brendan and Jason agree those things are in place for both and LinkedIn.

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Comments from our Foolish Readers

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  • Report this Comment On April 15, 2014, at 11:47 AM, Pkylie wrote:

    Along comes another Muppet Fool Pump article on Lnkd.

    Well done, MF.

  • Report this Comment On April 15, 2014, at 12:58 PM, wesam wrote:

    this is why they created the discounted cash flow valuation model. An investor who is asking this question should really have someone managing his investment

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Brendan Mathews

A Fool since 2005, Brendan is a research analyst on The Motley Fool's Stock Advisor newsletter. He enjoys scouring financial statements, pontificating on competitive advantage, and any outdoor activity.

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8/28/2015 4:00 PM
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***
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LinkedIn CAPS Rating: **