What’s An Expensive Stock?

Expensive stocks are called growth stocks.  These stocks are more exciting than cheap value stocks, and tend to be more expensive.  Growth stocks tend to be more expensive because these companies are growing quickly, or are expected to.  Investors tend to be more willing to pay a premium for an investment that is expected to grow more quickly.

How do I know if a stock is expensive?

The most common way to determine if a stock is “expensive” (a growth stock) is its P/E ratio.  A P/E ratio above 15 typically indicates a growth stock.

Should I buy an expensive stock?

In growth, the key is to avoid overpaying.  As such, “growth at a reasonable price” is the sweet spot for many investors.

What if a company has no P/E Ratio?

Companies that have no earnings or that are losing money do not have a P/E Ratio.