Wanted to know PEG RATIO ,

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P/E RATIO = PRICE PER SHARE / EPS
PEG RATIO =
P/E RATIO / EARNINGS GROWTH RATE
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COMPANY A PRICE PER SHARE = 46
A COMPANY EPS THIS YEAR = 2.09
A COMPANY EPS LAST YEAR =
1.74
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COMPANY A. CURRENT P/E RATIO = 46 / 2.09 = 22
COMPANY A EARNINGS GROWTH RATE = (2.09 / 1.74) – 1 = 20%
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COMPANY A PEG RATIO = 22 / 20 = 1.1
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COMPANY B PRICE PER SHARE = 80
COMPANY B EPS THIS YEAR = 2.67
COMPANY B EPS LAST YEAR = 1.78
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COMPANY B CURRENT P/E RATIO = 80 / 2.67 = 30
COMPANY B EARNINGS GROWTH RATE = (2.67 / 1.78) – 1 = 50%
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COMPANY B PEG RATIO = 30 / 50 = 0.6
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THE LOWER THE PEG RATIO , THE MORE THE STOCK MAY BE UNDERVALUED GIVEN ITS EARNINGS PERFORMANCE. THE DEGREE TO WHICH A PEG RATIO VALUE INDICATES AN OVER OR UNDERPRICED STOCK VARIES BY INDUSTRY AND BY COMPANY .
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PEG RATIO BELOW ONE IS DESIRABLE .
BUT THIS IS NOT ONLY CRITERIA FOR STOCK SELECTION.
BECAUSE PEG RATIO DEPENDS ON HISTORICAL FACT WHICH MAY BE WRONG IN FUTURE.
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SUPPOSE INDUSTRY MAY FACE RECESSION or INPUT COST GO HIGH DUE TO LESS SUPPLY .
OR GOVT REGULATION IMPACT ON INDUSTRY .
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OUTPUT DEMAND DECREASES IN THE COUNTRY ,TECHNOLOGY UPGRADATION IMPACT ON INDUSTRY ETC.

Author: Atul Singh Stock Market Analyst

Disclaimer: This Blog, its owner, creator / contributor is not a research analyst and expressing opinion only as an individual investor in Indian equities. He/She is not responsible for any loss arising out of any information, post or opinion appearing on this blog. Investors are advised to consult financial consultant before acting on any such information. All information in this blog is posted for personal study, All information posted on blog is as available in public domain.

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