Ask Colin

Instead of comparing the PE ratio to EPS growth to assess a growth company could I simply compare the PE ratio to EPS?

No. EPS is expressed in cents per share for a single period. It tells you nothing about growth from the last period. The PE ratio is telling you how many years it will take to get your money back from an investment at today's price and current earnings. Obviously, the faster a company is growing, the higher the PE ratio that you will be prepared to pay. However, you can pay too much. The rule of thumb is that you only pay a PE ratio that is less than EPS growth.

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