A PEG ratio cannot be used alone but is a very powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio. Access to quality statistical information from the web such as past earnings and future earning estimates is essential to calculate this fundamental indicator. A variety of websites produce a PEG ratio but I have not found one site that has a reliable PEG ratio that I can use for my own research, so I calculate it myself, ensuring accuracy with the final number.
I am going to use the definition from investopedia.com as it makes complete sense and doesn’t get too confusing (below the definition is further explanation and a current real time example, using Apple Computer).:
The PEG Ratio:
“The PEG ratio compares a stock’s price/earnings (”P/E”) ratio to its expected EPS growth rate. If the PEG ratio is equal to one, it means that the market is pricing the stock to fully reflect the stock’s EPS growth. This is “normal” in theory because, in a rational and efficient market, the P/E is supposed to reflect a stock’s future earnings growth.
If the PEG ratio is greater than one, it indicates that the stock is possibly overvalued or that the market expects future EPS growth to be greater than what is currently in the Street consensus number. Growth stocks typically have a PEG ratio greater than one because investors are willing to pay more for a stock that is expected to grow rapidly (otherwise known as “growth at any price”). It could also be that the earnings forecasts have been lowered while the stock price remains relatively stable for other reasons.
If the PEG ratio is less than one, it is a sign of a possibly undervalued stock or that the market does not expect the company to achieve the earnings growth that is reflected in the Street estimates. Value stocks usually have a PEG ratio less than one because the stock’s earnings expectations have risen and the market has not yet recognized the growth potential. On the other hand, it could also indicate that earnings expectations have fallen faster than the Street could issue new forecasts.”
- provided by www.Investopedia.com
PEG Ratio Example:
Using Apple Computer Inc., I will demonstrate how to calculate the PEG ratio without relying on other websites.
First, you will need to gather the past earnings numbers; going back at least 2 years and going forward two years. (All data is from Thursday, June 23, 2005)
AAPL:
2003: 0.09
2004: 0.36
2005: 1.31 (E)
2006: 1.52 (E)
Now we need to calculate the growth from year to year.
Subtract the earnings of 2004 by 2003 and then divide by 2003.
Repeat the process to determine the growth rate for the following years:
2004: (0.36-0.09)/0.09 x 100 = 300% growth rate
2005: (1.31-0.36)/0.36 x 100 = 264% growth rate
2006: (1.52-1.31)/1.31 x 100 = 16% growth rate
Now, take the current price (we will use the close from Thursday, June 23, 2005: $38.89) and divide it by 2004 earnings and then by the 2004 growth rate:
2004: 38.89/ 0.36 / 300 = .36 PEG Ratio
2005: 38.89/ 1.31 / 264 = .11 PEG Ratio
2006: 38.89/ 1.52 / 16 = 1.59 PEG Ratio
Using the definition from above, Investopedia states that a stock is evenly valued at a PEG ratio of 1 in a rational and efficient market. Please note that the stock market is not very rational or efficient so we only use this number as a secondary indicator and tool, after our fundamental and technical analysis is complete.
Apple’s PEG Ratio of 0.11 for 2005 was discounted into the price when these estimates first hit the street, giving us the big run-up late last year. Going forward, the stock’s earning potential looks to slow considerably and the PEG ratio clearly shows us the tremendous jump in numbers from 2005 to 2006. A PEG ratio of 1.59 for 2006 is not the best rating going forward but still under the red flag ratio of 2.00.
Finally, once you determine the PEG ratio of the stock you are looking to buy, take the time to calculate the PEG ratio for the “sister stocks” in the industry group to see if they have higher or lower PEG ratios. Keep in mind, PEG ratios don’t work for companies with negative or non-existent earnings numbers.
By Chris Perruna
Chris Perruna - http://www.marketstockwatch.com
Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
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April 19 2008 | Stock Market Charting | No Comments »
High Yield Investing And The Forex
Investing in Forex is probably more risky but there is the opportunity to make more in a shorter space of time.
By high yield we mean, high yield consistent with the preservation of the capital invested. This definition means that investment in a new corporation that is just starting out is omitted as is investment in partnerships as a partner and in individual proprietorships whether they be shoe shine parlors or stock brokerage firms.
This latter type of investment does not stress the preservation of your capital down to the last dollar right from the time that dollar is invested. Granted it may work out wonderfully, and a dollar invested may conceivably grow to two or five or even $100, but when funds are invested in such a way they are spent for sales promotion or for a truck or machinery or for anything. Your dollar or fund of dollars thus cannot be returned since it has been put into forms of assets which it is hoped will start earning and eventually build up a fund of dollars to return to the investors.
We are talking about investments which right from the day you invest your money have as goals the preservation of every dollar and the payment of a return on that dollar. As soon as the investment is made, wheels are started rolling to return your investment to you. There is no particular virtue in this type investment as against the kind that takes your funds and puts them into a peanut stand which you and your partner will operate.
It is simply a different type of investment. If you put your funds into a building and loan association you know with reasonable certainty that they will be returned to you, and it is one of the main purposes of the association to keep your money intact at all times.
Besides the preservation of your fund of dollars, which will eventually be returned to you, the type investment we are talking about is the kind that gives you a high yield on your money, and by high yield is meant anything over the savings bank 3% or thereabouts, up to 20% and in some cases higher.
Quite aside from the fact that we are simply taking a type or types of investment and studying these, there is very real merit to concentrating on what we call high yield investments. In a free enterprise a democratic economy such as we have in the United States the factors of production are guided into their most valuable use by going where they are offered the greatest reward or return.
The laborer goes where he is paid the most; the executive moves out of his job with his company and into a higher paying one in another company; a farm is excavated away and in its place is constructed a modern shopping center; and capital goes where the users are willing to pay the most for it, provided the risk is approximately the same.
In the railroad building era which started in the 1830’s the smart, large aggregations of capital went into constructing new rail lines and buying new equipment, and the return on the capital in this employment was high. Since those pioneering years the railroads have matured and gradually new forms of transportation have come in as competitors, mainly trucks, airlines and bus lines. The railroads now need little capital for expansion and thus are unwilling to pay a high rate of return to attract it.
In the early and middle 1950’s mobile homes (house trailers) were just developing as a full fledged industry, and to attract money this industry was willing to pay a substantial rate of return. Later in the 1950’s this business approached a plateau of development, at least a temporary one, and it could not pay the rate of return it once did. In 1959 and 1960 and into 1961 still another industry came up, and came up fast, and it was willing to pay a high rate of return in order to attract capital shell or pre-cut homes, manufactured in parts at the factory and shipped knocked down to the owner’s land where they were assembled quickly and easily.
The industry was new. It needed funds to develop. Since it was new and in its early stage of great demand, its profits enabled it to pay a healthy rate of return on the money it needed.
If you invest in stocks or Forex make sure you do not risk more than you can afford to lose.
If you invest in Forex you will find software will help you tremendously.
http://www.greatpublications.com/forex.htm Free Forex Software For You To Use: Download Free Forex Software
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March 11 2008 | Foreign Exchange Forex and High Yield Investments | No Comments »
Your Steps To Maximize Your High Yield Investment Program. by Vagner David
Any investor wishes to make money in High Yield Investment Program. Finding a successful high yield investment program is not enough to maximize your high yield investments. Certainly it is not easy to maximize your return on investment from best High Yield Investment Program. The main point of this article is the strategies how to find “fruitful” and prosperous HYIP and to maximize your interests from this High Yield Investment Program.
Before we start to discuss the strategies, we should find an answer to the question what is best High Yield Investment Program. Well, it is difficult to answer because there are various possibilities. For some investors the “fruitful” HYIP is HYIP with huge daily interest, for other HYIPers the “fruitful” HYIP is HYIP with instantly withdraw. Undoubtedly, all these investors are right.
I guess than each investor wishes the “fruitful” High Yield Investment Program which is online for a long time, not just several weeks or a few months. Moreover, each investor wishes that “fruitful” HYIPs must have fast support. Some HYIPs reply to your questions within 1-2 days and, of course, it is too long! I am a potential investor and I need to get an answer immediately!
Certainly, you can find many answers in FAQ section of a great number of HYIP web sites but sometimes you need information which you can not find there. If High Yield Investment Program has phone support so it is very good, you can always phone them and get answers to your questions.
According to many experienced online investors, one of the most important things for the “fruitful” High Yield Investment Program is fast withdraws. No one wants to wait 1 or 2 days till they receive payment. Certainly, everyone wants to get money within few hours. “Fruitful” HYIPs have to pay fast.
All investors agree with me that High Yield Investment Program security is significant in online investments. Of course, the “fruitful” and prosperous HYIP must have the server protection to guarantee that users’ accounts are safe and secure. Real “fruitful” HYIPs spend a lot of money for hosting and advertising as well as Ddos protection and security.
If High Yield Investment Program has Prolexic Ddos protection it is a really good sign of seriousness of this high yield investment program because according to online security data, Prolexic Ddos protection costs more than $2000 per month.
Daily interests are the subject of many hot discussions on online High Yield Investment Program forums because investors have very different opinions. Some people prefer 10-20% daily and other like 1-2% daily. Undoubtedly, the prosperous HYIP invests money into Forex trading and to other contemporary industries. So if HYIP earn money in Forex they can not offer 10-20%. It is impossible and each investor knows that.
Now the time is to discuss ways how to maximize your High Yield Investment Program. After having found the “fruitful” and prosperous HYIP, the key to having successful investments is to build a safe, diversified portfolio and to extract your own money as quickly as possible. This will limit risk to your capital because if one programme closes, you will still have the others to fall back on.
Before investing in any programme, you should do a little research on it. I mean you should remember the main features of prosperous HYIP, namely daily interests of no more than 2-3%, excellent support, high qualified web site design of the High Yield Investment Program company and best users’ account protection.
Besides, High Yield Investment Program scripts are easily to get a hold of and this makes it easier for fraudsters and scammers to operate. One of the things to look for is the programmer’s reputation if they are paying consistently.
When the investor makes any online investment, his aim is to extract his money as quickly as possible. This is because the investor wants to be able to invest using the profit he made from the high yield investment programme to protect his own capital. For example, a typical investment could be $100 then, after 30 days, the investor would extract his own money and re-invest the profits so that he is making risk that he uses “other people’s money”.
Another meaningful thing is that the investor will need to make use of referral systems to explode his profits from his investments. This is when the investor recommends someone to the programme and receives commission for it. This usually creates residual income for the investor which means him the opportunity to invest more of “other people’s money” to make even more cash.
This article will help you find “fruitful” and prosperous High Yield Investment Program and maximize your high yield investments. To grab my collection of golden rules successful HYIP investing visit
David Vagner shows you how to maximize the effectiveness of HYIP.If you wish to become successful investor check his site HYIP rating or visit http://www.thehyips.net/lessons/
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March 10 2008 | High Yield Investments | No Comments »
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