Applying The PEG Ratio

The Price-to-Earnings to Growth (PEG) ratio is calculated easily and represents the ratio of the P/E to the expected future earnings growth rate of the company. In theory, a PEG ratio of above 1.0x seems to suggest that the stock is overvalued and vice versa. Let’s apply a modified PEG ratio to 4 countries: Malaysia, Singapore, Thailand and Indonesia.

Details about the PEG ratio have been well described in Read More

We have modified our PEG ratio as follows:

  • P/E ratio < 12.0x (a more reasonable P/E, relatively lower than general benchmark)
  • EPS growth rate > 12%, <20%  (not too high growth rate to be sustainable)
  • Current ratio > 1.25x (liquidity)
  • Total Debt / Total Assets < 50% (not too over leveraged)
  • RSI < 70% (not to be in overbought position)

Based on the above criteria, the following are the screened results, of which stocks with lower PEG ratio appear to be more attractive:

PEG_24Oct2016.png

It is important to note that the PEG ratio requires expected future earnings growth rate of the company. The above screened results are based on historical earnings growth rates. Hence, for a detailed PEG computation, one needs to compute the future earnings growth rate for the company.


Book Corner: Investing In Knowledge

More than one million copies have been sold of this seminal book on investing in which legendary mutual-fund manager Peter Lynch explains the advantages that average investors have over professionals and how they can use these advantages to achieve financial success.

America’s most successful money manager tells how average investors can beat the pros by using what they know. According to Lynch, investment opportunities are everywhere. From the supermarket to the workplace, we encounter products and services all day long. By paying attention to the best ones, we can find companies in which to invest before the professional analysts discover them. When investors get in early, they can find the “tenbaggers,” the stocks that appreciate tenfold from the initial investment. A few tenbaggers will turn an average stock portfolio into a star performer.

Lynch offers easy-to-follow advice for sorting out the long shots from the no-shots by reviewing a company’s financial statements and knowing which numbers really count. He offers guidelines for investing in cyclical, turnaround, and fast-growing companies.

As long as you invest for the long term, Lynch says, your portfolio can reward you. This timeless advice has made One Up on Wall Street a #1 bestseller and a classic book of investment know-how. Click image above for further reference.


DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR RELATED INSTRUMENTS MENTIONED ABOVE.

Author: Ken Utau

Markets Observer + Food Lover

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