I am an investor who is looking at using the PEG ratio to evaluate stock. How do you estimate returns growth?
What basis Ford stock rising from $8...
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?? Analysts and the company make an estimated guess as to how much a company will grow contained by the next years. Problem is that those are just guesses and are usually overly buoyant. I was looking at PEG as well a year ago but I no longer rely on it. Many of those low PEG companies run out of currency and fail.
Shoot, I was looking at BRLC who make TVs and they had ridiculous low PEG of .34 when they were $4. Problem is they burn through dosh and are at $1. Based on PEG, they seem like a great bet. I look at qualifications to generate cash flows.
Answers: You are not estimating earnings growth, financial analysts do this. Also, make sure you know what time ascend the company reporting this number is using. Common periods are 1, 3, and 5 year PEG. Lower P/E ratios and better EPS growth equal lower PEG, which means the stock is undervalued (good if the stock catch up after you buy it). However, you must remember that these are all projections! If a company misses their earnings, consequently the PEG means nothing. GE missed their returns recently by only 7cents, but that equals $700mil. This should not be the lone thing you look at, because it is so speculative. Look at past income reports. Did they meet/beat consensus? Are they actively expanding the company? Any recent upgrades? S&P ranking? Do some tech analysis. Is the stock oversold? Take it all in earlier investing. Otherwise you could lose based on someone else's predictions.
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