Price/Earning-to-Growth (PEG) Ratio (PEG比率)
PEG ratio is an improvement from PE ratio, as it included expected earning growth into the calculation. Same goes to PEG ratio, where a higher PEG ratio means the stock is overvalued, and a lower PEG ratio indicates that the stock is undervalued.
Unlike PE ratio, PEG ratio will be different when different people are calculating it. This is because the estimated growth used will be different, hence different result will be produced.
Let me show you how different growth estimation will lead to different result
Depends on how many years of growth rate the person wanted to use, the result will be different too.
The writer will use another example showing how to compare different companies in a same sector.
When we are just comparing PE ratio, ORNA have the upper hand since it has a lower PE ratio. However, if growth rate is included into the calculation, MASTER have a much lower PEG ratio, hence it is more worthwhile to invest in MASTER.
All these information are the history of the companies, meaning that all these are past data. Even the company may look attractive with these old data, but the future growth is still the most important element. A company with a strong fundamental previously is not worth to be invested if they have no future.
In short, PEG ratio is the improvement version of PE ratio where it included growth rate. However, even with a low PEG ratio, the future growth is still the most important element for a growing company. Only buy companies that are growing, and never on those that stop growing.
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