Priced for Perfection

QCan you explain the term “priced for perfection”? — C.P., online A It suggests that a stock’s price is rather high, with investors expecting perfect performance from it and a correspondingly high valuation. It also hints at riskiness, because if the company makes some mistakes or there’s some bad news, the stock price could take a significant hit. It’s best to stick to “value investing,” where you seek healthy, growing companies whose shares are selling for significantly less than you think they’re worth. That gives you a margin of safety to minimize your downside risk. *** QDoes a stock price of $60 per share reflect a company that’s financially healthier than one with a $20 stock price? — L.G., Greenwood, South Carolina A A company’s share price alone reveals very little. It has meaning mainly when you consider other numbers, such as how many shares there are (many companies have millions, and others have billions) and how much income the company is earning per share. You can assess the company’s health by examining its financial statements to see how much cash and debt it has, how rapidly its revenue and earnings are growing, and how fat its profit margins are. If a company has taken on a lot of debt and its sales have been shrinking, it’s likely not an appealing investment at any price. If a company is growing rapidly, increasing its profit margins, gaining market share in its industry and has a stock price that seems to be below its intrinsic value, it’s likely a solid investment — no matter its price. Remember: A $2 stock can really be worth $0.10, while a $500 stock might be worth $1,000 — and be headed there, too.