Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market: How to Achieve Superperformance in Stocks in Any Market

by Mark Minervini

Historical study of superperformance stocks shows that the average P/E increased between 100 and 200 percent on average (or two to three times) from the beginning until the end of major price moves. This information can be used in two ways. First, you can get an idea of a stock’s potential. You can estimate what it might sell for as an average best-case scenario within a year or two down the road from your initial purchase price, that is, if you’re buying a dynamic leader in a bull market. You could estimate future earnings and apply the expanded P/E number to get a rough idea of the stock’s theoretical potential. Second, you can gain some perspective on how much of the company’s good fortune has already been discounted by gauging how much P/E expansion has taken place already. Let’s say you buy a stock with a P/E of 20 at its initial breakout from a sound base. Multiply 20 by 2 to 3 to see what the ratio could rise to. That gives you 40 to 60. You hope that the stock continues to rally. Though it’s always prudent to look for sell signals, pay extra attention once the P/E nears 2x and especially around 2.5x to 3x or greater. It could top soon afterward. If this occurs, look for signs of decelerating growth and signs of weakness in the stock price as your signal to reduce your position or sell it out.