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George Putnam, one of the country's leading turnaround and distressed investing professionals, answers your investing questions. This is your chance to find out everything you wanted to know--but were afraid to ask--about turnaround investing.

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How important are Price-to-Earnings (P/E) ratios in evaluating turnaround stocks?

June 28, 2012

Price-to-Earnings ratios are probably the most widely used tool for comparing the relative values of different stocks. However, they are often less significant for turnaround investors. One reason for this is the fact that many turnaround stocks don’t have any earnings to plug into the P/E ratio calculation because they have been losing money prior to the commencement of their turnaround. And even when a turnaround company has begun to show earnings, the level of those earnings may still be quite low, which leads to a misleadingly high P/E ratio. The one circumstance where I do find P/E ratios helpful is where a company has a very low P/E ratio compared to its peers. This may indicate that Wall Street may have given up on the company--depressing its stock price and increasing the gain potential.

(Question submitted by Wendy M.)

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Market-Beating Profit: The 200+ Club

Turnaround stocks present a unique opportunity for savvy investors to buy in at bargain prices. Take a look at this list of just a few of our purchase recommendations that have realized a return rate of 200% or better:

* Bristow remains in our active portfolio (currently as a Hold), and 2,057% gain is as of 11/9/16.

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Chicago Tribune highlighted this Kiplinger's Money Power write-up on George's contrarian investing approach and The Turnaround Letter's April 2016 monthly turnaround stock pick.

 

Darren Fonda notes, "…besieged stocks often start to recuperate as the headlines fade and investors anticipate a return to precrisis sales and profits. The trick, of course, is to find companies that are more likely to rebound from a setback than collapse entirely."

 

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