a helluva P/E; the PEG at 3.7 or so, is also pretty high.
Recall that PEG is extremely misleading for higher growth rates, where the relationship between growth rate and future value becomes far from linear. e.g. a company growing at 100% per year is worth far more than just twice of what a company growing at 50% a year is worth. Do some Excel spreadsheets if you don't believe me.
Say you have two companies, each making $1 each this year. One is growing at 50%/yr, the other at 100%/yr. Look:
1 1.5 2.25 3.4 5
compare to
1 2 4 8 16
After four years, the second company has more than three times the earnings of the first company, even though PEG suggests the second company should be valued at only twice the first company's value.
BTW, I posed this challenge on SI years ago, and I still haven't had any takers. The challenge is explain the rationale behind the idea that stocks should have PEG=1, or, even easier, explain any rationale whatsoever behind PEG's supposed usefulness.
IMHO, PEG is very, very misleading. It's a nice valuation security blanket, but it's so arbitrary. |
