| The two most important numbers that
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| | company is expected to have stable
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| investment analysts look at when
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| | earnings growth in the future, then the
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| evaluating a stock are the P/E ratio and
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| | share price will go up. It is not easy to
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| the PEG ratio. The former has been around
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| | discern whether a high or low ratio is
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| for as long as the stock market itself,
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| | good or bad; you need to take into
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| the latter originated more recently. A
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| | account the expectations for future
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| thorough analysis of these dueling
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| | earnings growth to understand if the P/E
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| indicators reveals that one is definitely
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| | ratio is a positive or a negative.
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| superior to the other.
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| | The pitfalls of using the P/E ratio to
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| The P/E is the price-to-earnings ratio.
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| | interpret the relative worth of a stock
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| It is used to calculate how expensive or
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| | resulted in analysts coming up with a
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| how cheap a stock is relative to its
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| | better measurement, which is known as the
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| earnings. Using it, an investor can get a
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| | PEG ratio. The PEG refers to the
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| sense of whether a stock might be
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| | price-to-earnings growth ratio. It is
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| overvalued or undervalued. The ratio is
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| | calculated like this:
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| calculated as follows:
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| | PEG = (P/E) / Annual earnings-per-share
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| P/E = Price per share / Earnings per
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| | growth
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| share
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| | The lower the PEG ratio, the more
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| The price per share is the current market
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| | undervalued the company is. A PEG ratio
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| price for a single share of stock. The
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| | of 1 or less is considered excellent. For
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| earnings per share is the net income
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| | example, if a company has a P/E ratio of
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| divided by the total number of shares
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| | 30, and annual earnings-per-share growth
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| outstanding. You can find net income by
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| | of 50%, then the PEG would be 0.6, making
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| looking at a current income statement,
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| | this company an excellent buy because it
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| which almost all corporations now make
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| | is undervalued and the stock price will
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| available on their company website.
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| | almost definitely climb. However, if a
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| The lower the P/E, the cheaper the stock
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| | company has a PEG of 1.5, that means that
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| is. The higher the ratio, the more
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| | the stock price is high relative to the
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| expensive the stock is relative to its
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| | earnings growth, which means that unless
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| current earnings. However, that does not
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| | the company is supposed to grow at a
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| give you the full picture. The reason why
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| | faster rate in the years head, the stock
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| some companies sometime trade at very
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| | price might not hold up.
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| high price-to-earnings ratios is because
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| | So, it is obvious that the PEG is a much
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| they are expected to grow tremendously in
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| | more valuable tool for investors to use.
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| the months and years ahead. So, investors
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| | It reveals whether the high price of a
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| are willing to pay more than what the
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| | stock is justified based on whether
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| company is currently worth because they
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| | earnings will grow enough to continue to
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| feel the company will be worth a lot more
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| | drive the stock higher.
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| in the future.
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| | The P/E falls short in this regard
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| So, you should not necessarily run away
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| | because it does not take into account by
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| from a company with a high P/E. In fact,
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| | what percentage earnings are growing each
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| those companies are sometimes the best
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| | year. Increasing earnings are the driving
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| investments, because if their earnings
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| | force behind an increase in the price of
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| climb tremendously, then the stock will
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| | a stock. Therefore, using the PEG, you
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| pay a large dividend in the future (for
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| | can truly ascertain whether the price is
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| the uninitiated, dividends are a
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| | currently too high and whether it is a
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| percentage of the profits of a company
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| | good time to buy the stock.
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| that are distributed to its
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| | I hope this information has helped you
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| shareholders). So, a high P/E ratio can
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| | form an understanding of how to evaluate
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| be a very good thing or a very bad thing.
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| | stock prices. Try to set aside some money
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| As with a high P/E, a low P/E can also be
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| | for investing, and begin to analyze
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| tricky. If it is low, this could be an
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| | stocks and buy the ones that have a low
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| indication that the earnings of the
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| | PEG. They may not go up right away, but
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| company are expected to plummet, causing
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| | in the long run they should increase
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| investors to run away from the stock,
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| | significantly, unless there is something
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| resulting in a low share price.
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| | fundamentally wrong with the company.
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| Or, the low ratio might indicate that the
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| | Research carefully the companies you are
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| company is currently undervalued, making
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| | going to invest in and you will do fine.
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| it a good buy because as long as the
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