Ask Colin

I have read one of your articles regarding choosing value shares by their PE and yield, but I am unsure as to your approach on growth shares. I also note that you will be happy to trade a trend in the face of recently poor financials, etc. So, my question is how do I go about narrowing down my choices of shares to watch and perhaps trade?

The value shares are the easiest to find using a scan of fundamental ratios as shown on my videotape and described in the articles on my web site.

Growth shares are rather more difficult to find in the same ways, because the ratios we might use are not so readily available.

Ideally, we would need price to sales, Earnings per share growth, sales growth, return on equity and so on. What we would be looking for are companies with high profit margins, high returns or equity and above all high growth in earnings per share.

The way I approach this in the absence of appropriate ratios for all companies to scan is to work the opposite way around to the value shares. With them, we scan the ratios and then screen the results with charts. With growth shares, I scan the charts looking for the growth pattern and then check the ratios for the companies I find. This means resort to the annual profit reports, basically, although some services with the data are coming available, though expensive - Sherpa by Market Advantage, Stock Doctor and I think also Sharefinder.

I find that because I read the Australian Financial Review all the time, I have a good knowledge of which are growth companies.