For one thing, peg is not linear. There's a difference between a company growing at 8% and one at 28%. If they both have 1.0 peg's today, it won't take very many quarters for the faster grower to be worth lots more (I'm assuming long term growth in both cases, vs. eg a peg based on next year's earnings only).
Also, companies' inflated valuations tend to persist--as long as they don't stumble. In addition to Cisco, look at Coke, which was a slightly superior grower for a generation, but has always carried a very high valuation. If you look at a chart from 1986, well after Coke had begun to have a premium value, it has continued to receive a premium. Even with its stumble in the last two years, its stock performance over the last 15 years is still ahead of the S&P. The clue for Coke was that its relative valuation exceeded what it historically carried, in the mid-90's. That probably was the clue to exit. It was on that basis that I recently exited two of my original holdings, AIG and Pepsi. That same analysis might also have been applied successfully to Intel earlier (it has since come back to earth), Qualcomm, and perhaps Siebel and Network Appliance, for instance. |
