PEG Your Stock Picks
A good ratio to keep in your back pocket is the PEG or Price / Earnings / Growth. The problem with the general PE is it doesn’t separate between old stable company and super growth superstar.
Here’s an example:
WidgetUs has made widgets for the last 100 years with a PE of 15 while SuperCoolTech is the hottest thing out there and has a PE of 85. The general value investor may say 15 could have promise while 85 is right out. But what happens when you factor the future growth of the company.
WidgetUS is expected to grow earnings at a rate of 5% as it has for the last 10 years while SuperCoolTech is fore-casted to grow at 45% for the foreseeable future.
WigetUS PEG = 15 / 5 = 3.0
SuperCoolTech PEG = 85 / 45 = 1.89
All things else being equal SuperCoolTech appears to have the better price per earnings potential.
Remember when you’re looking at PEGs you compare equal earning numbers and growth numbers. Some use the average of the last 1, 5, or 10 years while others use the analyst expectations of future growth. Just make sure that all PEGs you are comparing use the same methodology.
Personally, I like to find PEGs less than 1.0; however, if I’m looking to fill a certain sector for diversification reasons per your investment plan, I like the PEG to be lower than the industry standard or competitive companies PEG numbers.
If there is any paticular areas in stock market investing you are interested don’t hesitate to ask.
Good luck out there.
Related posts:
- Stock Debt
- Market Cap Stock
- How To Value A Stock
- It’s Time to Pay Off Debts
- Stock Return – Review of All Stock Picks
[...] tool you can use is the Price to Earnings (PE) or Price to Earnings Growth (PEG) for stable mature companies I tend to like a PE less than 8, and for nearly all companies I [...]