No. of Recommendations: 0

*The PEG has no sound investment basis.*
In fact, a 1-year PEG value can be mathematically shown to be nonsense.
That's because both the P/E ratio and the growth rate are based on the same
thing -- current earnings. They cancel each other out, leaving just price
versus the **change** in earnings.
That is, given:
P = Current price
EPS0 = Latest 12-month EPS
EPS1 = Forecast 12-month EPS
We get:
P P
------ ------
EPS0 EPS0 P
PEG = ---------------- = ----------------- = -------------------
EPS1 EPS1 - EPS0 100 * (EPS1 - EPS0)
100 * ---- - 100 100 * -----------
EPS0 EPS0
Examples:
#1: Given: Stock = $9
EPS = $6
Estimated EPS = $7
Then: P/E = $9 / $6 = 1.5
Growth rate = $7 / $6 = 16.7%
PEG = 1.5 / 16.7 = 0.09
#2: Given: Stock = $9
EPS = $1
Estimated EPS = $2
Then: P/E = $9 / $1 = 9
Growth rate = $2 / $1 = 100%
PEG = 9 / 100 = 0.09
I know which stock I'd rather own!