I2,
It only takes 6 years for a $300 dollar stock earning $1/share and
owning a 300% growth rate to surpass $700/share/yr in earnings. So there is power in the PEG. I think we all realize that. Lynch first proposed the idea I think, and the Gardners took it as their own and popularized it.
My problem with the PEG is that a lot of people use it, and when it really looks good, then usually something is happening behind the scenes that is bad, and I don't know about it.
In any case, PEG is entirely theoretical for most internet companies, since most, including Amazon.com, are only posting wider losses despite their sales gains. This is because a commodity is being sold and competition is occurring on price. If a steel maker came out and sold steel at 30% below the market, it would grab market share like crazy. And people would dump the stock into the toilet. But add .com and make it books and look what happens.
This is not true of Yahoo or AOL. I would never short an internet company that has shown it can profit at all. Even Ebay. But many,
to me, don't have a model for profit, or for sustainable ultra-high
profit growth once profitability occurs.
Good investing,
Mike |
