Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (20234)	9/10/1998 3:19:00 AM
From: IQBAL LATIF	Respond to of 50167

Price earning growth factor divides the prospective price earning ratio by the estimated future growth rate of the company's earnings. The problem with Price earning ratio is that it is one dimensional number, it say nothing about the future growth rate of the company, it also fails to compare one company with the other having identical rate of earnings growth. One more problem is that PER is indifferent to the opportunity cost of capital, what return is available from a alternative investment with some profile of risk and rewrd.. Ideally PEG should be less than 1, according to Slater low PEG's work best in the 12-20 range of PER's with substantial growth rate of EPS of between 15% and 30%.Like PEG would work good for INTC but for a higher PER like MSFT PEG lose more of their utility..You should look at this carefully- A company with 1 $ earning and stagnant rate of say 5% is the not the same as company with 1$ earning and 30% or 50% growth rate... like wise S&P earnings does not take into account the growth rate factor on surface what looks to be big huge overvaluation can be explained by huge growth rate of some of these companies. MSFT is one example a lot is made of its high PER but look at its growth rate, we also use EBITDA, EBIT PBT, known as earnings before interest, tax, depreciation and amortisation, earnings before interest and tax, and the last one profit after interest but beofre tax...Utilising EBITDA or EBIT you get enterprise value, nowadays we are also using turnover multiples but all this needs a nice book and should study them very closely, inability to fully appreciate geometric progression based on compounding is PEG against PER.