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Gold/Mining/Energy : Canadian Small Cap Stocks

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To: Ally who wrote (143)	6/25/1998 7:38:00 PM
From: Gordo	Read Replies (2) of 512

Denise, >>Low PE alone may not be a desirable indicator. The company could be lacking of business growth and keeping too close to its knitting. Growth, is the key for me. Find me a company with excellent growth and many a times, it would turn out also to be profitable.<< I also agree that I prefer growth over a pure P/E measure. One of the key indicators that I look for in this area is the PEG ratio - P/E divided by earnings growth. This is based on the philosophy that a fairly valued company should have a P/E which reflects earnings growth. I have had good luck investing in companies with a PEG ratio of 0.5 or less. This is an investment philosophy espoused by many growth style investors over time including Peter Lynch. More recently the Motley Fools have also used this approach, although they have dubbed the PEG ratio "the fool ratio", as if it is their unique creation. GSM (one of the stocks that I know you hold) is a good example of a growth company with a low PEG ratio. It has already delivered a very healthy return for me over the past six months, and I believe will continue to do so. BFX (now DFX) is another great example which has rewarded me well since I bought it a year ago. I am currently doing some extensive DD on what I believe to be another great candidate, I will post it here if it pans out - I should know once they release Q2 financials in mid July. One final thing that I always do as well on any company is margin analysis, particularly gross margins (revenue less COGS). I prefer companies with gross margins in excess of 60%, as these will generate significant bottom line returns as sales increase. The company that I alluded to above has gross margins in excess of 75%, and net margins close to 50%, which I believe to be outstanding!

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