164 - PEG What, Where, Why and How Mike Torbenson Puget Sound Chapter

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Class Description P/E to Growth (PEG) is the bridge between growth and valuation. We review the underlying principles of PEG and how you can use this future and historical PEG to help pick a realistic growth.

Objectives When finished you will be able to Define PEG Explain why you’d use PEG Calculated historical and future PEG Find PEG on the SSG and PERT Use PEG to balance estimated growth and P/E Use PEG to evaluate valuation risk American Style Options began April 26, 1973 with only CALL options on 16 stocks. By 1975 traded on 32 stocks.

Why PEG? How much fuel is in your 2-stage rocket? The growth rate defines P/E supported by earnings. For example a 10% annual growth will support a P/E of 10 resulting in a PEG of 10/10 = 1 1 or 100%.

What is PEG? PEG = PE / Growth Rate Historical PEG uses past results such as the historical 5-year P/E average P/E (SSG Section 3) and 5yr or 10yr EPS Growth Rate (SSG Section 1) Future PEG uses estimates such as 5yr Average P/E (SSG Section 4) and 5-yr Estimated EPS Growth Rate (SSG Section 1)

Where is PEG? Toolkit 6 SSG Section 3 PERT Online Tools

Historical Adjustment Long term historical S&P 500 price appreciation is about 10% (including dividends) Long term historical S&P 500 P/E is about 15. The historical PEG for the S&P 500 is 15/10 = 1.5 or 150%.

How can I use PEG? Balance estimated GROWTH with P/E Appreciation from EARNINGS? Appreciation from P/E EXPANSION? <Demonstrate Usage>

Summary Why PEG? What is PEG? Where is PEG? Historical Adjustment Rocket fuel to riches! What is PEG? Growth = P/E Historical Future Where is PEG? SSG & PERT Historical Adjustment S&P 500 Historical Average PEG = 1.5 (including dividends) Usage Balance growth and P/E estimates Verify price appreciation potential – both stages

Thanks Mike Torbenson Mike@Torbenson.org