America On-Line (AOL) Message Board

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Technology Stocks : America On-Line (AOL)

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To: Dennis J Baltz who wrote (11558)	4/19/1999 10:49:00 PM
From: Bill McCullen	Read Replies (1) of 41369

Dennis, I believe the author of the WSJ piece would agree that PEG is an excellent measure of a stock's potential. You say that 1.0 to 1.5 provides some "signal" why is that? I would think that a PEG of less than 1.0 would be a sign of an undervalued company. If company XYZ trades at 15 times trailing earnings but is growing those earnings 30% per year (PEG=0.5) that company is appealing (unfortunately there aren't many out there these days). Likewise, companies with PEG > 1.0 may not be that attractive unless they have other attributes such as being a clear market leader (i.e. CSCO, MSFT, EMC and AOL). However, there comes a point where one has to question companies trading at PEGs of > 2. Lets look at AOL. According to the article it trades (before today) at 700 times trailing earnings and 450 times expected earnings for this year. According to Yahoo research the expected 5 year growth of AOL is 50% per year. This yields a PEG of 14.0 vs. trailing earnings or 9.0 vs. forward earnings. Therefore, according to your own measure, AOL is grossly overvalued. The only comparison to GM in the article was in revenue and it was purely illustrative. You are disingenuous to suggest otherwise. Bill

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