MASTERCLASS Investment – What is PEG – Price to Earnings Growth

MASTERCLASS Investment – What is PEG – Price to Earnings Growth

What is PEG – Price to Earnings Growth


In an earlier Masterclass we covered the PE ratio – Price to Earnings Ratio. A variation further to PE is the growth of the PE – ie PE growth. This takes into account the stock’s value while considering the company’s earnings per share growth.

What is PEG – Price to Earnings Growth

What is PEG – Price to Earnings Growth

It is sometimes favoured over the price-earnings ratio because it also accounts for growth. It is similar to the P/E ratio in that a lower PEG means that the stock is more undervalued. One should keep in mind that the numbers used in the calculation are considered projected and therefore are only estimates. Also, there are many variations using earnings from different time periods (e.g., one year versus five years), and whether the annual growth is projected or (future prediction) or trailing (past history), so you need to know the exact method and time-frame the source is using.

As an example, consider two companies:

The first has P/E ratio 50 and annual earnings growth rate 20 = PEG ratio of 50/20 = 2.5

The other has P/E ratio 15 with annual earnings growth rate 10 = PEG ratio of 15/10 = 1.5

Comparing the two, first doesn’t have the growth rate to justify the higher PE and the stock price is considered over-valued.

If you use future earnings figures you are looking at projected PEG.

Want to learn the core issues of share investing? Our workshop Navigate to Successful Share Investing gives a hour practical session to learn to easily understand Company Financial Statements, how to find healthy companies, what tools and ratios to use, work on examples, and also includes how to get better investment outcomes. Other Bonuses as well. Check the next one see 2 Investment WORKSHOPS or call 0407 361 596


About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit will SET UP your SMSF and provide investment education for a better result. We take care of all your administration, accounting, ATO lodgement and audit of SMSFs, working with you and your advisors. If you want advice we can arrange one of our recommended advisors and accountants to meet with you, as we do not give advice, but take instruction only. Take control of your super, including property shares and other assets. Learn how to be your own advisor - make better decisions - by being mentored and coached to invest your own super wisely and strategically by qualified partners. Book to come to an event to find out more, or - Call us 0407 361 596, no obligation FREE strategy call.
This entry was posted in Investing - Stock Fundamentals, Masterclass Investment, SMSF Investing. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s