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Archive for Sunday, October 10, 2004

The Motley Fool

October 10, 2004

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Name That Company

Last Week's Trivia Answer: I used to be thought of as an electronics parts store, but I've become a major retailer of name-brand wireless communication products and other digital technology parts, products and services. In other words, I'm a good place to find electronic gadgets, gizmos and gifts. About 94 percent of all Americans live or work within five minutes of one of my roughly 7,000 stores or dealers. My tagline is, "You've got questions. We've got answers." Headquartered in Fort Worth, Texas, I rake in more than $4.5 billion annually. You might call me a wireless transmitter hut. Or a broadcast bungalow. Who am I? (Answer: Radio Shack)

Stock values

How can novice investors tell when a stock is overvalued (and therefore should be avoided)? -- J.M., Flagstaff, Ariz.

Experienced investors often crunch a lot of numbers, taking many factors into consideration. Novices can learn these skills, but understand that even complex discounted cash flow analysis calculations are still based on assumptions and estimates. Moreover, expert investors often disagree on the fair value of specific stocks.

For beginners, one way to get an initial handle on a stock price's attractiveness is to compare its current price-to-earnings (P/E) ratio with its historical P/E range during the past five to 10 years.

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