There’s more to finding winning stock picks than just following a bunch of valuation metrics such as P/E ratios, earnings forecasts and debt levels.
For example, just because Fortescue Metals Group (ASX: FMG) trades on 3.6 times earnings per share, does not make it a bargain. By the same token, although Commonwealth Bank of Australia (ASX: CBA) currently trades on a trailing P/E ratio of 17, it mightn’t be able to grow fast enough to justify its current price.
The most important decision many investors will fail to make is knowing whether, or not, a company deserves its current share price. It’s not as easy as it sounds but, if you can get it right, you could find yourself easily beating the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO).
For example, one growth stock which I feel is more than deserving of its current price tag is Cash Converters International Ltd (ASX: CCV). It is a well-established business with a global presence and growing earnings per share. Higher earnings will come from the growth in its branch network, online payday loans and the new Carboodle business. It pays a 3.6% fully franked dividend.
Whilst Cashies is a brand familiar to most Australians, chances are that few would know Donaco International Ltd (ASX: DNA). It is a hotel and casino operator with its flagship Aristo International Hotel located in Lao Cai, near the border between Vietnam and China.
Recent tensions between the two nations have highlighted the possibility of country risk. However management confirmed that visitation numbers to the newly renovated hotel were up strongly and that recent tensions between the two countries had no impact on the business. At under a $1.00 per share, I think Donaco is a good buy for a high-risk investor.
Lastly, Slater & Gordon Limited (ASX: SGH) has continued to kick goals for shareholders. As Australia’s biggest law firm in Personal Injury, it’s now executing its UK expansion strategy with success. With earnings set to grow strongly in coming years, the current share price could prove undemanding.
To buy, or not?