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The Zulu Principle: Making extraordinary profits from ordinary shares by Jim Slater

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7. Competitive Advantage

Competitive advantage is a crucially important further criterion which you must fully undertsand.

Imagine that you have identified a dreamlike company, which appears to be growing at 20% per annum, with a P/E ratio of only 10 and a very attractive PEG factor of only 0.5. When you find a share growing at this rate, you know, almost for certain, that at some point in the future, the P/E ratio will be at least 20 and the share would then have a PEG factor of one. However, in a particularly heady phase of the stock market, the multiple could easily rise as high as 25 to 30 times earnings. It is important to understand that the P/E ratio will certainly rise as more and more investors realise that the company churns out ...

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