Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next
Author: RichSK Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2003  
Subject: Re: Valuing small caps Date: 3/18/1999 9:40 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
"Would you buy a company with high margins and a low Flow, but a PEG of 2, or a company with average margins and Flow, but a PEG of 1?" - kdelong

I wouldn't buy anything on the PEG alone! Always do your homework!

The name of the PEG game, as I'm certain you already know, is to buy fine young companies at bargain prices. (Or fine mature companies via the YPEG.)
But the PEG is just an initial screen, a little something that draws your attention to some company among the thousands. An "excellent company" that carries a high price tag implies very high expectations. A high PEG gives one pause for thought: How much of that stock price is a reflection of future growth, and how much is just blind faith and/or speculation? A low PEG makes one consider: Is this a company being unfairly overlooked?

*** Soapbox Alert! ***

From my severals years of tracking The Motely Fool, and my two years as a stock investor, the true principal to follow is to understand what you're buying. This understanding grows with practice. Everything else, from the PEG to the Foolish Four to anything else in the Foolish Workshop, are only tools, like a scalpel is to a surgeon, or a hammer to a carpenter. Use them, but not blindly! (Or, as the old saw goes, "It is a poor craftman that blames his tools.")

*** Ok, I'm done now. Sorry :) ***

IMHO, you buy the company that has the better chances at giving *your own portfolio* the better returns. But I'm a beginner too, so take it for what it's worth (and, of course, check out http://www.fool.com/School/IntroductionToValuation.htm if you haven't already done so.)

For further food-for-thought, check out the threads "PEG intuition" and "How To PEG Fool Ratio" (messages 910 and 891). It is very important to understand the PEG to give proper meaning to the number. Frankly, I would recommend against any mechanical stock picks based solely on the PEG.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

The Story Behind the Story
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement