Continuing our discussion from last time, the next metric of significance is the PEG (Price Earnings Growth) Ratio.  While one can measure the value of a stock based upon its’ PE as discussed last week, it is valuable to know if the company is growing and that is what the PEG Ratio tells us.  The PEG equals the PE divided by the annual Earnings Per Share growth.  The resulting number will project an undervalued company if that number is low.  The PEG can be represented in various time periods such as annually or for a longer period such as 5 years.   The measure is comparative so one can derive perspective in terms of valuation when comparing the company against its’ own past performance as well as comparing against other companies in a similar industry or sector.

Another metric used for valuing a stock against the market as well as itself is Price/Sales.  The formula is the stock’s price per share divided by its’ revenue and is usually represented by the TTM (trailing twelve months).  This measure is more accurate when comparing companies in similar industries and sectors.  The measure does not account for how efficiently the company is operating because expenses are not included in the calculation.

Finally, this week we will touch upon one additional valuation metric, Price/Book.  This measure compares the Market Value of the company as reflected by the share price of the stock divided by its’ Book Value which is defined as its’ Total Assets less liabilities and Good Will or blue sky value.  If the company exhibits a lower number, it can be indicative of an undervalued company although, further investigation may reveal that the company may have internal problems. 

We hope that your Holidays have been joyful.  Best, Robin

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