Security stock and the market.

Next, David from Nebraska wanted to understand how Cramer uses P/Es to make decisions, particularly about companies in the Investors Business Daily category of commercial services for safety and security. He noted that Armor Holdings (AH:NYSE - news - research - Cramer's Take) was trading at 12.5 times earnings, was interested in American Science and Engineering (ASEI:Nasdaq - news - research - Cramer's Take) and saw LoJack (LOJN:Nasdaq - news - research - Cramer's Take) trading at 27 times earnings. He asked Cramer to compare the stocks and to clarify where to find the growth rate, whether it should come from growth in earnings or revenue.

Cramer answered, "I never rely on just one, single indicator." He explained that some companies are difficult to value because they don't have a lot of sales, which was the case with Yahoo!, a holding in his charitable trust. Cramer bought the stock though its EPS was low because he saw the revenue build. So, he clarified, he's willing to use P/E as a benchmark but to step away from that. Cramer said that he was never crazy about LoJack, though it is growing earnings and revenue and looks inexpensive on earnings. Cramer sees Armor Holdings and American Science and Engineering as plays on bomb detection, so think not earnings but big contracts.

He was careful to emphasize that when he deviates from looking at EPS, "I'm talking about trading. When I invest, I always think about EPS." The example of Yahoo! came up again; Cramer explained that he was willing to buy it at 100 times earnings because its growth rate was 30%; subtracting Yahoo! Japan gave a P/E of 60, and it looked cheap in 2001-02 earnings when you considered its earnings in the out years. So Cramer's No. 1 factor to consider is EPS, but for trading he's willing to put that aside. For trades, Cramer looks for catalysts like contracts, and bomb-and-security stocks always have a lot of catalysts, which makes them interesting trading opportunities.