The Folly of PEG Proportion
| Team info | |
| Description | Price Earning Growth (PEG) Ratio is the relation of a company's P/E with its growth rate. Lots of experts have concurred that a stock is pretty valued when its PEG percentage identical one. Be taught new information about open in a new browser window by visiting our thought-provoking link. Which means that if your stock has a P/E of 10 having a growth rate of 10%, then your stock is trading at fair value. How many of you've seen this sort of record? I have seen it lots of times and I think it is ridiculous. It is a relatively simple thought. Let's think of it for a minute. The stock has to deal in a P/E of 8, If your stock can grow its gaining for 8-14, then to achieve fair value. How about a stock with growth rate of 5%? Its fair value is a P/E Of 5. Think about a company with 005-.010 growth? Oh, right. Based on this theory, the company should have a P/E of 0, or useless. Does this seem sensible? Heck, no. But there are a large amount of articles regarding this PEG idea. Here are many resources of generally mis-understood PEG ratio: http://www.moneychimp.com/glossary/peg_ratio.htm http://www.fool.com/School/TheFoolRatio.htm http://www.investopedia.com/articles/analyst/043002.asp For a 0% growth company, the fair P/E rate for the company isn't 0. Instead, it is a few percentage above risk-free interest-rate or even a five year treasury bond. If a five year bond is yielding 4.6%, then a fair value of a common stock are at 7.6% yield. Inverting this yield, we obtain a P/E rate of 13.2. Whatever else is wrong with using PEG rate to determine the fair value of a common stock? PEG assumes infinite growth rate in earning per-share. No company can grow in the same rate forever. If we assume company A will grow at 10% rate for your next five years and then growth slows to two weeks forever, what is the reasonable value of the most popular stock using PEG ratio? The solution is-it can't do that. PEG ratio is much too simple to single-handedly assign a fair value for a common stock. It is only wrong and inaccurate to-use PEG ratio for the fair value calculation. Common sense dictates a stock with higher growth rate should be valued at a higher P/E percentage. Learn further on the affiliated website - Click this link: https://www.linkedin.com/company/orange-county-seo-company. There's nothing wrong with that. But employing a simple PEG ratio of one as a reasonable value of the common stock is merely wrong. I do not have a precise way to determine this-but an estimation might be read on other articles called Calculating Fair Value with Growth and Fair Value with Negative Growth.. To read more, we know people check out: https://www.linkedin.com/company/orange-county-seo-company. |
| Web site | http://www.liusuanxin.net/social-network-the-next-great-marketing-channel/ |
| Total credit | 0 |
| Recent average credit | 0 |
| Cross-project stats | SETIBZH BOINCstats.com Free-DC |
| Country | United States |
| Type | Primary school |
| Members | |
| Founder | nwliimdxqeee |
| New members in last day | 0 |
| Total members | 0 (view) |
| Active members | 0 (view) |
| Members with credit | 0 (view) |