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Strategies & Market Trends : Free Cash Flow as Value Criterion -- Ignore unavailable to you. Want to Upgrade?

To: Bob Martin who wrote (237)	6/22/1998 10:52:00 PM
From: Andrew	Respond to of 253

Bob, Your big tables really illustrate just how much information is missing when you just look at a P/E ratio. I agree with you...it's pretty much useless. Thanks for sharing your results with us. Andrew

To: Bob Martin who wrote (237)	6/24/1998 1:50:00 AM
From: Rex Dwyer	Respond to of 253

I hear what you are saying. Peter Lynch always made a simple point that owning a 10% grower at a P/E of 10 is not as good as owning a 20% grower at a P/E of 20. I think from this, the PEG ratio was born in the halls of Fido. However, the important part is that any growth rate over 35% becomes a bit difficult to quantize and its 10 year growth rate becomes suspect. So, if you adjust the risk higher on very high growth companies, you manage to get closer to the old PEG ratio. All of that said, I like to only use PEG ratios in the range of 15 to 30. Above that range, I use try to gauge the market size, when the company will get there, and then apply a normal PE on expected operating earnings and discount to present day. The P/E and P/E/G will bounce all over the place in between the present and the expected date of achieving its full growth. Rex