One of the simplest pieces of advice when investing in shares is to buy when they are good value. Deciding if something is good value is a much harder task.
'Cheap' doesn't necessarily mean something is good value, 'expensive' doesn't necessarily mean something is bad value.
Here are three stocks with high price/earnings ratios that could be great market-beaters:
Domino's Pizza Enterprises Ltd (ASX: DMP)
The Domino's share price has been on a rollercoaster over the last few years. It's fallen from $80 down to $40 today.
I think today's price offers great value because it has large growth plans to expand its number of outlets in Australia, Europe and Japan. Management also predict that profit margins will increase by at least around 5% over the next several years. Same store sales growth continues to be impressive.
Domino's is currently trading at 25x FY18's estimated earnings with a partially franked dividend yield of 2.29%.
Altium Limited (ASX: ALU)
This electronic PCB software provider has already been a great performer for shareholders, but I think there's a lot more to come.
The growth of the 'Internet of Things' and other devices should drive more interest towards Altium's products. Management are predicting that revenue will double over the next few years. Combine revenue growth with increasing margins and Altium could be a big winner.
Altium is currently trading at 29x FY18's estimated earnings with an unfranked dividend yield of 2.19%.
REA Group shares have done very well in 2017, but I think there's still a lot of potential.
The business has made a number of strategic investments in other property websites in South East Asia, India and the USA. Each of these investments could add a significant amount to its earnings in the coming years.
The domestic property market in Australia could also generate a lot more revenue if homeowners have to advertise for longer on the site.
REA Group is trading at 33x FY18's estimated earnings with a fully franked dividend yield of 1.34%.
Foolish takeaway
All three of these shares are likely to be market beaters over the next five years. If I had to pick one, I'd say Altium has the best chance of beating the market because of its predicted revenue growth.
