You are almost there Kevin. All you have to do is have all those posts removed and I will consider your apology complete. A PEG is a serious measurement of future growth. It is not something that I invented for my own amusement and certainly not yours. Towards the end of this post I will be happy to enlighten you on that but I assure you there are more than one post by you and your friends that I wish to see removed.
>You asked me a direct question, "You think I'm a hypester? A moron or both?" I lazily answered "Yes", because I had no desire to decompose the question and give a compound answer.<
Kevin one thing I am not is lazy. So lt me ask you once again to have those posts and there are several of them removed.
Now lets move on to a discussion of PEG's from an outside and hopefully mutually respected source:
ibes.com
The Price-To-Earnings/Growth (PEG) Ratio
The Price-to-Earnings/Growth ratio, called the PEG ratio by many, is a way of
checking rather quickly whether or not a stock might be over- or under-valued
relative to its growth. "Relative to its growth," you are asking, "don't price/earnings
ratios stand alone?" Although some like to think so, the simple fact is that Wall Street
is constantly comparing the price being paid for a stock with the amount of growth
potential possible from that stock. The most simplistic mathematical expression of this
is the PEG ratio.
The PEG simply takes the annualized rate of growth out to the furthest estimate and
compares this with the current stock price to Earnings Ratio. As it is future growth
that makes a company valuable to both an aquirer and a shareholder seeking either
dividends or free cash flow to fund stock buybacks, this makes some degree of
intuitive sense. Some go as far as to suggest that in a fair and fully-valued situation,
the price/earnings ratio is equal to the rate of earnings per share (EPS) growth, but
the relationship is actually quite a bit more complex than this.
Now that you know there is more than one way to express this relationship, we will
demonstrate the most prevalent form of the PEG. If a company is expected to grow
at 10% a year over the next two years and has a P/E of 10, it will have a PEG of 1.0.
P/E of 10 = 1.0 PEG (The lower this number, the better)
---------------------------
10% EPS growth
Some investors believe that a PEG of 1.0 suggests that a company is fairly valued. If
the company in the above example only had a P/E of five but was expected to grow
at 10% a year, it would have a PEG of 0.5 -- implying it is selling for one half (50%)
of its fair value. If the company had a P/E of 20 and expected growth of 10% a year,
it would have a PEG of 2.0, worth double what it should be, according to the
assumption that the P/E should equal the EPS rate of growth.
Another way to do the PEG is not to look at next year, but to look at the estimated
five-year growth rate. This will tell you a lot about what analysts expect in growth
from the company and can give you a good idea of about what multiple to forward
earnings estimates that it should trade at -- should it make those estimates and
generate that kind of growth. For instance:
10% 5-year growth estimate * $1.00 in EPS estimated for next year = a $10 stock.
You know Kevin we have different styles in our posting. It's that simple. Am I calling you a hypester or a moron or even a judgmental whatever? No, but I am asking you to separate what you feel is hype and wait until you have absolute proof before you point a finger at me ever again. Please have those inflammatory posts removed from SI.
Thank you, Jeff
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