Comments on: Use PEG Ratio instead of P/E Ratio http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/ A blog about trading, finances, success and life itself Fri, 30 Dec 2011 14:18:33 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: chrisperruna.com » Blog Archive » The Best of chrisperruna.com in 2007 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-16329 chrisperruna.com » Blog Archive » The Best of chrisperruna.com in 2007 Thu, 31 Jan 2008 03:38:34 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-16329 [...] Use PEG Ratio instead of P/E Ratio [...] [...] Use PEG Ratio instead of P/E Ratio [...]

]]> By: chrisperruna.com » Blog Archive » Disregard Conventional P-E Ratio Theory http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-14446 chrisperruna.com » Blog Archive » Disregard Conventional P-E Ratio Theory Tue, 09 Oct 2007 14:17:17 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-14446 [...] no longer sustain. Growth stocks cost more because they GROW! I have had more success using the PEG Ratio instead of P/E [...] [...] no longer sustain. Growth stocks cost more because they GROW! I have had more success using the PEG Ratio instead of P/E [...]

]]> By: Investing Blog http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-6987 Investing Blog Mon, 14 May 2007 00:13:39 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-6987 While the PEG ratio isn't fullproof because the growth rate relies on analyst projections, it is definitely more useful than the P/E. Companies often experience quick jolts in earnings, which send the P/E out of whack very quickly. Plus, forward P/E is more useful if you're a long term investor. I like to calculate the <a href="http://www.investortrip.com/excel-eps-growth-rates/" rel="nofollow">EPS growth rate</a> of a company using Excel, and track the numbers for a month or two. Since I try not to short term trade (aside from options), it helps me pick up earnings trends w/o solely relying on the pundits. Good post just so you know. While the PEG ratio isn’t fullproof because the growth rate relies on analyst projections, it is definitely more useful than the P/E. Companies often experience quick jolts in earnings, which send the P/E out of whack very quickly. Plus, forward P/E is more useful if you’re a long term investor. I like to calculate the EPS growth rate of a company using Excel, and track the numbers for a month or two. Since I try not to short term trade (aside from options), it helps me pick up earnings trends w/o solely relying on the pundits. Good post just so you know.

]]> By: chrisperruna.com » Blog Archive » Houston Wire and Cable Company (HWCC) http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-3760 chrisperruna.com » Blog Archive » Houston Wire and Cable Company (HWCC) Tue, 27 Mar 2007 20:08:16 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-3760 [...] We have had two distribution weeks in the past month but support has not been violated. I can also say that fund managers are accumulating the stock by looking at the most recent institutional numbers below. Finally, the PEG ratio is excellent at 0.54 and earnings increased by 134% year-over-year from 2005 to 2006. HWCC is the type of CANSLIM stock that can double or triple over the next couple of years with its fair share of up-and-down swings. [...] [...] We have had two distribution weeks in the past month but support has not been violated. I can also say that fund managers are accumulating the stock by looking at the most recent institutional numbers below. Finally, the PEG ratio is excellent at 0.54 and earnings increased by 134% year-over-year from 2005 to 2006. HWCC is the type of CANSLIM stock that can double or triple over the next couple of years with its fair share of up-and-down swings. [...]

]]> By: Bill aka NO DooDahs! http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-156 Bill aka NO DooDahs! Sun, 28 Jan 2007 00:43:42 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-156 One problem with PEG, if it is used with a projected 5-yr growth rate, is that many of the under-followed stocks in the small-cap universe have no analysts' projections, therefore a screen for PEG will miss them. If it's used with a historic growth rate, it will tend to pick up peaking cyclical stocks, i.e., their earnings growth has already happened, and the low PE is the market discounting future shortfalls in earnings. That being said, I like the PEG but usually if I'm interested in a stock's growth prospect I will hit it with a DCF to see if the PE looks fair. About buybacks - it would be very rare for a buyback to materially impact EPS growth. In order to grow the EPS by 10% in a year, the company would have to buy back 8.9% of their outstanding stock in that year! Basically NOBODY buys back that much stock. A super-aggressive buyback is maybe 5% in a year. MAYBE. That would be 5.3% growth in earnings, IF they were that aggressive. You might find a few buybacks that aggressive in any given decade. From my point of view, where I'm looking for extreme values or clusters of anomalies, it's unlikely that the buybacks that actually happen move the PEG significantly enough to make it extremely low. One problem with PEG, if it is used with a projected 5-yr growth rate, is that many of the under-followed stocks in the small-cap universe have no analysts’ projections, therefore a screen for PEG will miss them.

If it’s used with a historic growth rate, it will tend to pick up peaking cyclical stocks, i.e., their earnings growth has already happened, and the low PE is the market discounting future shortfalls in earnings.

That being said, I like the PEG but usually if I’m interested in a stock’s growth prospect I will hit it with a DCF to see if the PE looks fair.

About buybacks – it would be very rare for a buyback to materially impact EPS growth. In order to grow the EPS by 10% in a year, the company would have to buy back 8.9% of their outstanding stock in that year! Basically NOBODY buys back that much stock. A super-aggressive buyback is maybe 5% in a year. MAYBE. That would be 5.3% growth in earnings, IF they were that aggressive. You might find a few buybacks that aggressive in any given decade. From my point of view, where I’m looking for extreme values or clusters of anomalies, it’s unlikely
that the buybacks that actually happen move the PEG significantly enough to make it extremely low.

]]> By: Randy Harmelink http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-134 Randy Harmelink Sat, 27 Jan 2007 05:28:33 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-134 Chris -- Your calculation of PEG is different than any I have seen before. Your Investopedia quote says PEG is P/E ratio divided by EXPECTED growth rate. Your 2006 value of PEG is using a hindsight growth rate. Chris — Your calculation of PEG is different than any I have seen before. Your Investopedia quote says PEG is P/E ratio divided by EXPECTED growth rate. Your 2006 value of PEG is using a hindsight growth rate.

]]> By: Jeff http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-116 Jeff Fri, 26 Jan 2007 17:41:36 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-116 Great article. The example, however, would imply that, all things being equal, value stocks are the better option. According to this, the lower PEG has the potential to vastly outperform the higher PEG. Is there a market condition or an environment where this would NOT be the case, where a lower PEG would prove detrimental? Great article. The example, however, would imply that, all things being equal, value stocks are the better option. According to this, the lower PEG has the potential to vastly outperform the higher PEG. Is there a market condition or an environment where this would NOT be the case, where a lower PEG would prove detrimental?

]]> By: Tom http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-111 Tom Fri, 26 Jan 2007 17:16:45 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-111 Chris, Great article about the PEG ratio and its application. I use PEG a lot as one of my inputs for my neural net stock picking model. Chris,

Great article about the PEG ratio and its application. I use PEG a lot as one of my inputs for my neural net stock picking model.

]]> By: Chris http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-110 Chris Fri, 26 Jan 2007 17:14:53 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-110 I don't pay too much attention to this because I study the entire financial statement of the company I am researching and will notice special situations based from all the fundamentals together. I don’t pay too much attention to this because I study the entire financial statement of the company I am researching and will notice special situations based from all the fundamentals together.

]]> By: Leisa http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/comment-page-1/#comment-107 Leisa Fri, 26 Jan 2007 12:07:56 +0000 http://www.chrisperruna.com/2007/01/25/use-peg-ratio-instead-of-pe-ratio/#comment-107 Chris, with the extraordinary amount of stock buybacks we've seen over the last 18 months or so, would you make any adjustments for the effect of buybacks inflating the EPS number? Otherwise, we are going to have a few companies that will appear to have stronger earnings growth when in fact the EPS increase is merely a result of a declining outstanding shares denominator in the EPS calculation. Chris, with the extraordinary amount of stock buybacks we’ve seen over the last 18 months or so, would you make any adjustments for the effect of buybacks inflating the EPS number? Otherwise, we are going to have a few companies that will appear to have stronger earnings growth when in fact the EPS increase is merely a result of a declining outstanding shares denominator in the EPS calculation.

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