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

To illustrate, let’s say Company A is trading at 25 times its earnings for a P/E of 25. If it reports earnings that are 20 percent higher and the stock price remains essentially unchanged, the P/E will drop to 20.83 times earnings. If the stock price jumps 20 percent on the earnings news, the P/E will remain the same at 25 times earnings. Over time, as a stock grows more and more popular and the price rises consistently, its P/E ratio can expand as the stock’s price appreciates at a faster rate than its earnings growth. If the stock rises significantly over 12 to 24 months and the P/E expands by 100 to 200 percent, doubling or tripling from where it started near the beginning or from the bottom of the major price move, it’s possible that the price move is in its later stage and is getting too widely recognized.