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Technology Stocks : Dell Technologies Inc.
DELL 127.61+0.8%3:59 PM EST
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To: Chuzzlewit who wrote (51500)7/16/1998 4:51:00 PM
From: Geoff Nunn  Read Replies (4) of 176387
 
Chuz, I've enjoyed reading your various posts concerning the deficiencies of P/E and PEG in valuing stocks. If one is going to use PEG, I do like your suggestion of normalizing it, i.e., using the ratio of the particular stock's PEG to the S&P's PEG. I am curious though whether this measure may be misleading for stocks that pay dividends.

What is PEG supposed to measure? Presumably it compares how high the stock is priced (the PE ratio) relative to its investment return (the growth rate in earnings). This sounds reasonable to me if the stock pays no dividend. In cases of dividend stocks, however, the total return is g + d, where d is the dividend yield. Therefore, I wonder if the statistic PEG shouldn't be modified to become PE/(g+d). In the special case of a stock which pays no dividend it would reduce to PEG.

You mentioned that Dell's normalized PEG is less than 1.0. Would this still be true if we modify the S&P's PEG for dividend yield. I'm not sure what the correct figure is but believe it to be ~2.0%. Two questions: (1) would you regard adjusting for dividend yield as legitimate, and (2) would it have made any difference in your conclusion that Dell's normalized PEG is less than 1.0?

Geoff
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