We have just added three PEG ratios to the Quant Investing stock screener.
The ratios we added are:
(Click on the above hyperlinks for more information?
What Is the Price to Earnings to Growth (PEG) Ratio?
The price to earnings to growth ratio (PEG ratio) is calculated as a company's current price-to-earnings (PE) ratio divided by its earnings growth over the past 1, 3 or 5 years.
It is used to value a company while at the same time adding earnings growth to the valuation ratio.It thus gives you a more complete company valuation picture than the standard PE ratio and lets you find undervalued or an attractive growth at a reasonable (GARP) investment.
Why do we use historical EPS growth?
We don’t use expected or forecasted earnings growth when calculating the PER ratios.
This is because all the research we have seen have shown humans (incl. analysts) cannot forecast even if their lived depended on it.
That is why we used historical growth numbers.
What does the PEG ratio tell you?
It gives you a value and growth insight into the value of a stock. A low PE ratio might let a company look cheap but adding its EPS growth gives you an additional insight.
For example, a low PEG ratio will make even high PE companies look attractive if they have high earnings growth.
The well-known investor Peter Lynch suggests that a fair value for a company is when its PE ratio is about equal to its EPS growth rate. This should give you a PEG ratio of 1.0. For example, a PE ratio of 10 and EPS growth of 10%.
Thus, a PEG ratio greater than 1.0 may indicate a company is expensive, while a PEG ratio below 1.0 means a company is undervalued or an attractive growth at a reasonable (GARP) investment.
How are the PEG Ratios calculated?
The PEG Ratios are calculated as the Current PE ratio (trailing 12 months TTM) divided by Earnings per Share growth over the same period 12 months, 3 years, and 5 years ago.
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