In today’s video, we talk about one of the two metrics that Joel Greenblatt uses to find stocks for his hedge funds at Goliath Capital. He explains these in his book, The Little Book that Beats the Market. The first of the two metrics are Earnings Yield.
We want companies that have a higher Earnings Yield, preferably over 10%. This means that the company is earning more than the price we are paying to by the stock.
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The PEG Ratio is a a great tool to quickly see where a stock may be valued at any point in time.
It looks at a company’s current PE compared to its Earnings Growth Rate. We want to invest in companies who have earnings that are growing at a higher rate that the current PE. If so, you have potentially identified an undervalued company.
The PEG Ratio is also useful because this takes growth into account whereas the PE Ratio does not. It’s another tool to have in your toolbox.
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