Day40. Financial term | Earnings Per Share
The PEG ratio is a comprehensive indicator that combines a company's Price-to-Earnings ratio (PE) and earnings growth rate (EPS).
Specifically, the PEG ratio is the ratio of PE to EPS growth rate.
The PEG ratio is often used to help investors understand a company's growth prospects and whether its current stock price is reasonable.
If a company has a PEG ratio less than 1, it means that its stock price is reasonably valued relative to its earnings growth potential, indicating a favorable investment opportunity.
Conversely, if the PEG ratio is greater than 1, the company's stock price may be overvalued, and there might be some future risks.
Here's an example:
Suppose you are considering buying stocks of a company with a PE ratio of 25 and an expected annual growth rate of 20%. You can use the PEG ratio to assess whether the company is undervalued or overvalued.
The formula for calculating the PEG ratio is PE ratio divided by the annual growth rate. In this case, the PEG ratio would be 1.25 (25/20).
According to the PEG ratio guidelines, a company with a PEG ratio less than 1 is considered undervalued, while a PEG ratio greater than 1 indicates overvaluation. A PEG ratio equal to 1 is considered a reasonable valuation.
In this example, the company has a PEG ratio of 1.25, slightly higher than 1, which means the company is considered overvalued. In such a case, you may consider waiting for a price drop before buying or explore stocks of other companies.
Regarding the PEG ratio, here are some additional points to note:
The PEG ratio is only a reference indicator and should not be the sole basis for investment decisions. It needs to be considered along with other factors such as a company's financial condition and industry outlook.
Calculating the PEG ratio requires reliable future growth projections. Deviations in the projections can render the PEG ratio less meaningful as a reference.
PEG ratio standards may vary across different industries. You should compare the PEG ratio with companies in the same industry to determine if it holds investment value.
Pay attention to the company's earnings quality and stability. Do not solely rely on a low PEG ratio and overlook potential risks associated with the company.
In conclusion, the PEG ratio is a valuable reference indicator that can help you identify potential investment opportunities.
However, it should not be the sole basis for investment decisions and needs to be considered along with various factors!
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What is PEG ratio?
👉 to check if a company's stock price is reasonable to buy
👉 PEG ratio > 1 = stock price overvalued
👉 PEG ratio < 1 = stock price undervalued
How to count PEG ratio? [Doubt]
👉 PE Ratio (PER) ÷ Annual Growth Rate (AGR)
👉 PER 24 ÷ AGR 25 = PEG ratio 0.96 (undervalued! investment opportunity! [smile])
*PEG ratio is a valuable reference indicator to identify potential investment opportunities & should not be the sole basis for investment decisions!
**Check it out the additional points & notes @Tiger_Academy Day40. Financial term | Earning Per Share 😉
PEG ratio is a valuable reference indicator that can help you identify potential investment opportunities.
@koolgal @rL @icycrystal @b1uesky @Universe宇宙 @Aqa @GoodLife99 come and join ya
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The PEG ratio allows investors to calculate whether a stock's price is overvalued or undervalued by analyzing both today's earnings and the expected growth rate for the company in the future.
By knowing if a company is overvalued or undervalued will help us 🐯🐯🐯 to know whether we should buy a stock, when to buy a stock, and what price to buy the stock at. Thanks loads @Tiger_Academy ❣️
🌟🌟🌟PEG ratio or Price /Earnings to Growth ratio is an important metric for me to value a stock. In fact it is the only metric that takes a company's earnings growth rate into account. PEG is a great metric as it takes into consideration a company's growth prospect which is forward looking.
So if a PEG ratio is more than 1, it is considered overvalued. Conversely if it is less than 1, it is considered undervalued.
However it is important to use other metrics as well when deciding on whether to buy a stock, not just PEG ratio only, to get a more comprehensive analysis.
Thank you @Tiger_Academy for your important lesson on PEG which I will share with my other Tiger Friends.
Stocks are considered a riskier investment because of their tendency to fluctuate in value. There is a high chance that an investor could lose a substantial amount or all the amount invested. Before we buy the stock of a company, we will need to check the company financial performance and industry outlook. One of the easiest ways to check the company financial performance is by looking at the company’s financial statement and the financial ratios like price-to-book (P/B) ratio, price-to-earnings (P/E) ratio and dividend yield which are the commonly used metrics that can help break down a stock's value and outlook.
I have been using P/B ratio, P/E ratio, dividend yield, net income, EPS, Balance Sheet, and cash flow of the company to help me to evaluate a stock before investing. Thank you so much @Tiger_Academy for introducing and giving detail explanation of the PEG ratio which is a comprehensive indicator that combines a company’s Price-to-Earnings ratio (P/E) and earnings growth rate (EPS). I will now have one more metric to help me to identify the potential investment opportunity.
The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period.
The PEG ratio is used to determine a stock's value while also factoring in the company's expected earnings growth, and it is thought to provide a more complete picture than the more standard P/E ratio. Therefore, the PEG ratio is a valuable reference indicator that can help us to identify potential investment opportunities.
In general, a good PEG ratio has a value lower than 1. PEG ratios greater than 1 are generally considered unfavourable, suggesting a stock is overvalued. Meanwhile, PEG ratios lower than 1 are considered better, indicating a stock is relatively undervalued. A PEG ratio equal to 1 is considered a reasonable valuation.
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