Do Not Hang Stock Market Decisions on a PEG

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This web site goes further than mere meanings. We offer comprehensive explanations with examples you can use. You can ask us to keep trying until you understand the term fully. The bottom line is that you should land a stock market benefit with our inputs to your fund of investing know-how. Let us use P/E versus PEG as a live sales pitch.

Let us start with stock market basics. The P/E Ratio is the unit stock price divided by the Earnings per Share. Now if you divide the P/E Ratio by the annual growth in Earnings per Share, you get the PEG. Some stock analysts swear by PEG. We sit on the fence. Why is that?

The P/E Ratio most often refers to the average over the last four quarters. The jargon for this is TTM (Trailing Twelve Months). PEG generally refers to the future. Who knows what that holds? Municipalities and their bond insurers are reasonably confident of how city budgets will be spent. Business and stocks are different. Even a Bear Stearns is not safe. Imagine a name like Northern Rock collapsing across the Atlantic. We favor PEG for the INFY ADR type of security. Infosys is a transparent company with an ethical management. Their guidance track record is exceptional. You can rely on the management to warn you should their projected Earnings per Share drop below a forecast. PEG will not help if stock brokers use it to push you to transact stocks and make them commissions.

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