Jim Slater defined his own version of the PEG ratio in the book 'The Zulu Principle. This version uses both forecast rolling PE ratio and forecast eps growth rates, and incorporates the additional restriction that a companies must have 4 consecutive growth periods, albeit potentially including two forecast periods.
The PEG is a valuation metric used to measure the trade-off between a stock's price, its earning, and the expected growth of the company. It was popularised by Peter Lynch and Jim Slater. In general, the lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.
A PEG ratio of 1 is supposed to indicate that the stock is fairly priced. A ratio between 0.5 and less than 1 is considered good, meaning the stock may be undervalued given its growth profile. A ratio less than 0.5 is considered to be excellent.
This variation was popularised by Jim Slater. It should be noted that Slater's PEG uses the forward P/E Ratio as well as the forward growth rate. As a result it double counts the growth rate and thus understates the PEG Ratio. While popular in the UK, the low PEGs that result using Slater's PEG can be misleading. Our preference is to use the standard Rolling PEG.
For a guide on how to use the PEG in your investing, check out this article.
|Michelmersh Brick Holdings