Oh dear! You were thinking of buying shares of a stock that has skyrocketed. What are you going to do?
If you thought stocks never had gains anymore, take a closer look. Intuitive Surgical
Not necessarily. It's not all about the stock's current price -- though of course buying at a lower price is usually better. If you think that Carrier Pigeon Communications (ticker: SQUAWK) is worth $60 per share, it can still be a bargain at $45, even if you missed out on buying it at $30.
Do some digging
You can get a sense of a stock's relative value by comparing it to its peers. Yum! Brands, for example, has recently sported a price-to-earnings (P/E) ratio of around 18. Given that McDonald's
You might compare profit margins, for example, to see which is wringing out the most bang from each buck, as well as their dividend yields:
Company |
Net Profit Margin |
Dividend Yield |
---|---|---|
Yum! Brands |
8.4% |
2.2% |
McDonald's |
18.9% |
3.7% |
Burger King |
7.3% |
1.3% |
Data: Yahoo! Finance.
Growth rates also give you a sense of where the companies have been lately:
Company |
5-Year Revenue Growth |
5-Year EPS Growth |
---|---|---|
Yum! Brands |
5.7% |
13.5% |
McDonald's |
6.4% |
20.1% |
Burger King |
11% |
N/A |
Data: Motley Fool CAPS.
The numbers above reflect the quality of the company. To get a sense of how attractive its price is, you might compare its P/E with its average range in recent years:
Company |
Recent P/E |
High/Low P/E in Last 5 Years |
---|---|---|
Yum! Brands |
18 |
11-24 |
McDonald's |
14 |
11-32 |
Burger King |
14 |
N/A |
Data: Motley Fool CAPS.
Looking just at this data, you might conclude that McDonald's is priced most attractively right now. But remember -- this is just a start. The more you dig and the more you learn, the better handle you'll have on the company, and the greater your confidence will be regarding why you want to buy or not buy it.