One rule of thumb that is very useful with stocks (especially growth stocks) is to use the PEG ratio, or the Forward Price Earnings ratio divided by the 5 year estimated growth. A PEG ratio over 2 is considered overvalued, and a PEG ratio under 1 is considered very cheap.
Table of Selected Growth Stocks
Here are a few growth stocks with different PEG ratios. Data from Yahoo Finance, Tuesday, September 25, 2007:
| Symbol | Stock Name | PEG | Forward PE | 5 yr growth |
|---|---|---|---|---|
| AMX | America Movil | 0.46 | 15.12 | 32.65% |
| HRS | Harris | 0.56 | 15.17 | 27% |
| TDG | Transdigm Group | 0.65 | 18.58 | 28.50% |
| HANS | Hansen | 0.66 | 25.74 | 39.09% |
| WBD | Wimm Bill Dann | 0.67 | 23.53 | 35.00% |
| SNDA | Shanda Interactive | 0.71 | 20.73 | 29.39% |
| ABB | ABB | 0.78 | 19.43 | 25.00% |
| GOOG | 0.87 | 29.13 | 33.65% | |
| CROX | Crox | 0.96 | 25.55 | 26.57% |
| RIMM | Research in Motion | 1.12 | 34.46 | 30.82% |
| CSCO | Cisco | 1.15 | 17.73 | 15.43% |
| JSDA | Jones Soda | 1.15 | 42.77 | 37.07% |
| ISRG | Intuitive Surgical | 1.35 | 54.20 | 40.05% |
| GME | Gamestop | 1.40 | 29.10 | 20.75% |
| AAPL | Apple | 1.46 | 34.66 | 23.67% |
| BIDU | Baidu | 1.48 | 81.06 | 54.60% |
| GRMN | Garmin | 1.56 | 30.15 | 19.38% |
| NVT | Navteq | 1.69 | 39.81 | 23.49% |
| YHOO | Yahoo | 1.99 | 48.20 | 24.19% |
| AMZN | Amazon.com | 2.59 | 60.70 | 23.42% |
Chart of Growth Stocks
Here's a Chart of the different growth stocks sorted by PEG. In the graph, PEG is multiplied by 20. So an adjusted PEG of 15 means PEG is 15/20 or 0.75:
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