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No. of Recommendations: 7
Two thoughts:

* A high PE can be misleading when the E hovers near zero. Such a company may be transitioning toward a better future instead of just having a crazy PE. Ford in the 2009 timeframe would be an example. It got to a point of just barely making money instead of hemorrhaging it.... and had a high PE. Now, a low PE... and a lot different situation. Netflix? Is it transitioning to a better future? Got me! LOL It was a lot easier with Ford because I worked there and "saw the future". I don't often have that advantage.

* One of my high PE companies is CTRX, originally recommended by Rule Breakers at a bit more than $5 (split adjusted) and now teetering on the edge of being a 10-bagger for me. The PE has always been uncomfortably high to me....now around 50(!), but the "story" was convincing (to me) and earnings have grown well. I figure a time of PE compression is coming (naturally).... and perhaps unrealistically hope that it occurs slowly as growth slows and the company is considered "mature".

In my investing career, the best returns have been with turnarounds (F, ATPG) and fast growing companies (starting with Xerox in the 60s and continuing till now). With turnarounds, the PE is not the most relevant focus. With the fast growing companies..... it seems to be a bifurcated approach:

* get out before the company reaches a blow-up
* stay with it as it transitions into mature growth

Lots of examples of the blow-up case... no reason to dredge up bad memories for anyone, eh? ;)

It appears that ISRG is my best example of the second approach. Nicely growing company with a strong business....PE gradually easing from the 70s down to the 20s currently.... and it seems like growth can continue for quite a while. Sometimes.... that high PE is truly an anticipation of that future growth... and in some cases it is actually paying off.

Rob
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