Wanted to know PEG RATIO ,

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P/E RATIO = PRICE PER SHARE / EPS
PEG RATIO =
P/E RATIO / EARNINGS GROWTH RATE
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COMPANY A PRICE PER SHARE = 46
A COMPANY EPS THIS YEAR = 2.09
A COMPANY EPS LAST YEAR =
1.74
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COMPANY A. CURRENT P/E RATIO = 46 / 2.09 = 22
COMPANY A EARNINGS GROWTH RATE = (2.09 / 1.74) – 1 = 20%
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COMPANY A PEG RATIO = 22 / 20 = 1.1
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COMPANY B PRICE PER SHARE = 80
COMPANY B EPS THIS YEAR = 2.67
COMPANY B EPS LAST YEAR = 1.78
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COMPANY B CURRENT P/E RATIO = 80 / 2.67 = 30
COMPANY B EARNINGS GROWTH RATE = (2.67 / 1.78) – 1 = 50%
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COMPANY B PEG RATIO = 30 / 50 = 0.6
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THE LOWER THE PEG RATIO , THE MORE THE STOCK MAY BE UNDERVALUED GIVEN ITS EARNINGS PERFORMANCE. THE DEGREE TO WHICH A PEG RATIO VALUE INDICATES AN OVER OR UNDERPRICED STOCK VARIES BY INDUSTRY AND BY COMPANY .
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PEG RATIO BELOW ONE IS DESIRABLE .
BUT THIS IS NOT ONLY CRITERIA FOR STOCK SELECTION.
BECAUSE PEG RATIO DEPENDS ON HISTORICAL FACT WHICH MAY BE WRONG IN FUTURE.
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SUPPOSE INDUSTRY MAY FACE RECESSION or INPUT COST GO HIGH DUE TO LESS SUPPLY .
OR GOVT REGULATION IMPACT ON INDUSTRY .
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OUTPUT DEMAND DECREASES IN THE COUNTRY ,TECHNOLOGY UPGRADATION IMPACT ON INDUSTRY ETC.

Author: Atul singh stock market analyst

My aim is to generate awareness among investors and to protect them from being trapped.

1 thought on “Wanted to know PEG RATIO ,”

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