A few years ago, those struggling for social justice used to say “Think globally, act locally.” Investors struggling for profits will find the first part of this saying useful.
When trying to decide whether a stock’s price is far too high or at bargain levels, remember that no single or absolute standard exists. Prices are never so high that they can’t go higher; nor so low that they can’t drop even more.
You can still form an opinion on a stock’s price, of course. But use a variety of indicators. You might start with price-to-earnings ratios, price-to-cash-flow ratios, price-to-book ratios, price-to-sales ratios, dividend yields and other traditional yardsticks of value. You can supplement these with our Marpep Risk Indexes, Marpep Growth Indexes and quality ratings and the opinions of analysts who follow the stock.
You should consider the current earnings and dividend, but also whether they’re likely to be higher or lower in, say, two to five years. You also need to think of the current level and outlook for interest rates. After all, interest-producing investments compete against stocks for your dollars. Finally, international events like the civil war in Syria affect stock prices.
In short, you should adopt a broad and ‘global’ approach to forming an opinion about a stock’s price or stock prices in general.