Finding value in the Indian market is difficult, especially at times when markets are operating at record levels. Benchmarks rose more than 17 percent over the past year, but there are many stocks that have more than doubled over the same period.
Finding value in the markets, although most stocks have doubled in the last year could be a difficult task. To make the job easier for investors, there is a relationship that is easy to calculate and is readily available, ie the PEG ratio.
The PEG or price / earnings ratio for EPS annual growth can provide a more complete picture of the population, especially in a bull market when the P / E ratio tends to inflate.
A price-earnings ratio (PE) can be calculated by dividing the market value of the share by earnings per share (EPS). The relationship between PE and profit growth provides an overview if inventory and evaluation with respect to P / E alone.
There are a number of actions that have experienced a significant price increase if followed by the PEG ratio. To simplify, we have compiled a list of top ten stocks that have more than doubled investor wealth and still have a lower PEG ratio below 1.
Some stocks whose PEG ratio is less than 1 include such names as Avanti Feeds JM Financial, Sunteck Real Estate, Dewan Financing Housing, Edelweiss Financial Services, Balkrishna Industries, REC, Can Fin Homes and Lakshmi Vilas Bank.
“PEG is a good criterion for evaluating the assessment of a population, especially in upward markets when PE indicates an exaggeration. It is true that the PEG less than 1 leaves a margin of safety, even when the stock has a total price,” he said. VK Vijayakumar, chief investment strategist Geojit Financial services Moneycontrol.
“PEG inventories with investment of less than 1 deserve.But we should not conclude that a greater than 1 indicates PEG overvaluation and high risk. Recently, some stocks with more than 1 PEG have yielded good returns,” he said.
The theory suggests that less than 1 PEG ratio indicates that the stock is undervalued and analysts’ consensus estimates are currently too low. On the other hand, more than 1 PEG ratio suggests that the expectation of market growth is higher than consensus estimates.
The relationship can not be applied to all sectors. This works best for stocks that have a cyclical nature and to be more efficient, investors should use a growth rate based on the last 3 years, experts suggest.
“For growth, investors should consider long-term growth (growth of at least 3 years). This will reduce the cyclical element in growth and reduce error in calculating the ratio,” said Shashank Khade, senior director and advisers for Investment of capital Entrust Family Office to Moneycontrol. Although PEG is a good indicator, it should be used with other criteria. A bit indicator used, but it is important Gains Performance, experts suggest.
The performance of the results is the EBIT divided by the value of the company. “Efficiency gains over 5 percent is good, which can be used with the PEG ratio,” said Vijayakumar Geojit Financial Services.