Comments on: PEG Ratio: Why It’s More Relevant than P/E for Stocks http://www.darwinsfinance.com/peg-ratio/ Financial Evolution: Education, Adaptation, Achievement Mon, 06 Feb 2012 15:43:23 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Great Personal Finance Articles To Read 4-11-10http://www.darwinsfinance.com/peg-ratio/#comment-5242 Great Personal Finance Articles To Read 4-11-10 Sun, 11 Apr 2010 11:42:47 +0000 http://www.darwinsfinance.com/?p=2108#comment-5242 [...] in Financial Assets by Money Reasons. Dealing With Harsh Reality of Student Loans at Studenomics. PEG Ratio: Why It's More Relevant than P/E for Stocks by Darwin’s Finance. Five Signs of Financial Burnout at The Online Investing AI Blog. Is an [...] [...] in Financial Assets by Money Reasons. Dealing With Harsh Reality of Student Loans at Studenomics. PEG Ratio: Why It’s More Relevant than P/E for Stocks by Darwin’s Finance. Five Signs of Financial Burnout at The Online Investing AI Blog. Is an [...]

]]> By: Yakezie Challenge Carnival #7 | Money Reasonshttp://www.darwinsfinance.com/peg-ratio/#comment-5238 Yakezie Challenge Carnival #7 | Money Reasons Sun, 11 Apr 2010 04:18:52 +0000 http://www.darwinsfinance.com/?p=2108#comment-5238 [...] Finance:  PEG Ratio: Why It's More Relevant than P/E for Stocks - I’m a fan of the P/E ratio comparisons and the Market Cap. level.  Darwin, present a good [...] [...] Finance:  PEG Ratio: Why It’s More Relevant than P/E for Stocks - I’m a fan of the P/E ratio comparisons and the Market Cap. level.  Darwin, present a good [...]

]]> By: Matt @ Dividend Monkhttp://www.darwinsfinance.com/peg-ratio/#comment-5223 Matt @ Dividend Monk Thu, 08 Apr 2010 21:06:15 +0000 http://www.darwinsfinance.com/?p=2108#comment-5223 The PEG ratio is indeed a valuable tool, but only for certain types of stocks. I noticed in your latest post that your portfolio is mostly growth stocks, and the PEG ratio is indeed quite useful for growth companies. The PEG falls short when used for low-growth companies, though, and it's unhelpful to compare PEG ratios between a high growth and low growth company. For example, a company with zero growth that pays a large dividend will have a PEG of infinity (well, sort of, divided by zero. So if growth is, say, 0.5%, PEG will be extremely high). The PEG also fails to take into account a dividend (as does the P/E, of course). When I use PEG ratio I typically add the dividend yield to the growth part of the equation to balance this out. So in your above example, assuming both companies have have modest debt levels, I'd likely invest in the one with the higher PEG (especially if it pays a dividend). A company with a P/E of 10 and a growth rate of 5% is a pretty deep value if it also pays a solid dividend. So basically my point is that I only use PEG ratio when considering high P/E investments, as otherwise it doesn't provide useful information. The PEG ratio is indeed a valuable tool, but only for certain types of stocks. I noticed in your latest post that your portfolio is mostly growth stocks, and the PEG ratio is indeed quite useful for growth companies.

The PEG falls short when used for low-growth companies, though, and it’s unhelpful to compare PEG ratios between a high growth and low growth company. For example, a company with zero growth that pays a large dividend will have a PEG of infinity (well, sort of, divided by zero. So if growth is, say, 0.5%, PEG will be extremely high).

The PEG also fails to take into account a dividend (as does the P/E, of course). When I use PEG ratio I typically add the dividend yield to the growth part of the equation to balance this out.

So in your above example, assuming both companies have have modest debt levels, I’d likely invest in the one with the higher PEG (especially if it pays a dividend). A company with a P/E of 10 and a growth rate of 5% is a pretty deep value if it also pays a solid dividend.

So basically my point is that I only use PEG ratio when considering high P/E investments, as otherwise it doesn’t provide useful information.

]]> By: Money hintshttp://www.darwinsfinance.com/peg-ratio/#comment-5181 Money hints Tue, 06 Apr 2010 16:59:14 +0000 http://www.darwinsfinance.com/?p=2108#comment-5181 Both are great ratios when it comes to stocks, but to get the best and most accurate reading on the value of a stock you need to look at its intrinsic value. And to do this you need to at least run it 10 years out. Both are great ratios when it comes to stocks, but to get the best and most accurate reading on the value of a stock you need to look at its intrinsic value. And to do this you need to at least run it 10 years out.

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