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Looking at the Evidence

Are growth companies better or worse investments than mature companies? This question has been answered in a variety of ways. For instance, researchers have looked at whether investing in stocks with high PE ratios generates high returns; these stocks often tend to be high growth companies. Others have adopted a more nuanced approach, whereby they examine whether stocks with high earnings growth that are reasonably priced do better than the market.

High PE Strategy

The easiest growth strategy, albeit the riskiest, is to buy the stocks with the highest PE ratios on the market, on the assumption that these are growth companies in which the growth will deliver the excess returns in the future.


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