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Follow on Google News | PEG Multiple (Price Earnings to Growth)PEG multiple is widely used for comparing companies with different growth rates; say comparing the companies in early growth stage with matured companies.
By: Investment Banking: The Dream Begins PEG multiple, a valuation metric, is used for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. PEG is widely used for comparing companies with different growth rates; say comparing the companies in early growth stage with matured companies. PEG = PE รท EPS Growth for next 4 years (CAGR) Like the P/E Multiple, the PEG Multiple is used to get a better understanding of whether or not a company's stocks is overpriced, underpriced, or just right. If it is just like the P/E Multiple, then why analysts or investors prefer PEG to P/E? Investors may prefer the PEG multiple over P/E because it explicitly puts a value on the expected growth in earnings of a company. PEG multiple normally suggests whether a company's high P/E multiple reflects an excessively high stock price or is a reflection of promising growth prospects for the company. -- Source: "Investment Banking: The First Step", 2nd Edition, Chapter 5 (www.theIbclub.com) FaceBook: http://www.facebook.com/ End
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