Pkeservice

The Secret of Successful Investing
  • Privacy Policy

Understanding a Stock’s PEG Ratio

A PEG ratio can’t be used alone but is a really powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio. Access to quality statistical data from the internet such as past earnings and future earning estimates is vital to calculate this fundamental indicator. An assortment of websites produce a PEG ratio but I haven’t found one website which has a dependable PEG ratio I can use for my research, so I calculate it myself, ensuring accuracy with the last number.

I will use the definition from investopedia.com since it makes complete sense and does not get too confusing (below the definition is additional explanation and a current real-time instance, using Apple Computer).

The PEG Ratio:
“The PEG ratio compares a stock’s price/earnings (“P/E”) ratio to its expected EPS growth rate. If the PEG ratio is equal to one, it means the market is pricing the stock to fully reflect the stock’s EPS growth. This is”normal” in concept because, in a reasonable and efficient marketplace, the P/E is supposed to reflect a stock’s future earnings growth.

If the PEG ratio is greater than one, it indicates that the stock is possibly overvalued or that the market anticipates future EPS growth to be higher than what is currently in the Street consensus amount. Growth stocks typically have a PEG ratio greater than one because investors are willing to pay more for a stock that’s expected to grow quickly (otherwise known as”growth at any cost”). It might also be that the earnings forecasts are reduced while the stock price remains relatively stable for different factors.

If the PEG ratio is less than one, it’s a indication of a potentially undervalued stock or the market doesn’t expect the company to achieve the earnings growth that’s reflected from the Street estimates. Value stocks normally have a PEG ratio less than one since the stock’s earnings expectations have risen and the market hasn’t yet recognized the growth potential. On the other hand, it might also imply that earnings expectations have dropped faster than the Street could issue new predictions.

September 22, 2019 definition, expectations, future, greater, growth, market, ratio, reflect, stock, street

Previous
Next

SEARCH

ARCHIVES

  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019

TAGS

broker brokerage buyer buying commodity companies company contract currency decision email expiry financial future garbage growth information invest investment investor market markets money online opportunities option order people point position price probably purchase return selling share stock strategies strike technical trade trader trading underlying value