Bursa Malaysia Stock Watch
Why We Look at the PEG Ratio
kltrader
Publish date: Sun, 08 Aug 2010, 11:56 PM
kltrader
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Why We Look at the PEG Ratio
One of the more popular ratios stock analysts look at is the P/E, or price to earnings, ratio. The drawback to a P/E ratio is that it does not account for growth. A low P/E may seem like a positive sign for the stock, but if the company is not growing, its stock's value is also not likely to rise. The PEG ratio solves this problem by including a growth factor into its calculation. PEG is calculated by dividing the stock's P/E ratio by its expected 12 month growth rate.
One of the more popular ratios stock analysts look at is the P/E, or price to earnings, ratio. The drawback to a P/E ratio is that it does not account for growth. A low P/E may seem like a positive sign for the stock, but if the company is not growing, its stock's value is also not likely to rise. The PEG ratio solves this problem by including a growth factor into its calculation. PEG is calculated by dividing the stock's P/E ratio by its expected 12 month growth rate.
For more information on utilizing the PEG ratio, visit Learning Markets.
How to Score the PEG Ratio
- Pass?Give the PEG Ratio a passing score if its value is less than 1.0.
- Fail?Give the PEG Ratio a failing score if its value is greater than 1.0.
Looking at the PEG ratio for WMT in above chart, WMT should receive a failing score. You can see that the PEG Ratio is above 1.0.
PEG Ratio: FAIL
Read more: http://www.nasdaq.com/reference/dozen/peg-ratio.aspx#ixzz0w08v7wfA
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