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The 'PEG ratio' (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share , and the company's expected growth.
Stock B is trading at a forward P/E of 30 and expected to grow at 25%. The PEG ratio for Stock A is 75% (15/20) and for Stock B is 120% (30/25). According to the PEG ratio, Stock A is a better purchase because it has a lower PEG ratio, or in other words, its future earnings growth can be purchased for a lower relative price than that of Stock B.
In the spirit of better investing and in celebration of the first Worldwide Invest Better Day coming up on Sept. 25, Motley Fool analysts will be answering user- and reader-submitted questions ...
Going by the fundamentals of value investing, while picking undervalued stocks, investors need to focus on their earnings growth potential. 5 Value Stocks With Impressive PEG Ratio Skip to main ...
A lower PEG ratio, preferably less than 1, indicates both undervaluation and solid future growth potential of a stock.
Usage of the P/E ratio has the disadvantage that it ignores future earnings growth. Because the future growth of the free cash flow and earnings of a company drive the fair value of the company, the PEG ratio is more meaningful than the P/E ratio. The PEG ratio incorporates the growth estimates for future earnings, e.g. of the EBIT. Its ...
When the dividend payout ratio is the same, the dividend growth rate is equal to the earnings growth rate. Earnings growth rate is a key value that is needed when the Discounted cash flow model, or the Gordon's model is used for stock valuation. The present value is given by:
Here are seven out of the 43 stocks that qualified the screening.