For Immediate Release
Chicago, IL - April 13, 2018 - Stocks in this week's article Tailored Brands, Inc. TLRD , Guess', Inc. GES , FTD Companies, Inc. FTD , ArcelorMittal MT and The Timken Company TKR .
5 Best Value Picks with a Tinge of Discounted PEG
It seems that the value investing mantra needs to transform itself with shifts in equity playing habits. With voices being raised by legendary investors like Jeremy Grantham against the traditional value investing approach, we believe it is high time to ponder over the matter. As per Grantham, value investing can still work well, only the old school rules need to be altered (Published in a Forbes article).
This old approach undoubtedly overlooks the limitations of popular and simple value investing ratios like P/E (Price-to-Earnings) or P/B (Price-to-Book Value). These ratios are unable to judge the condition of a company's underlying business and overlook the earnings growth potential of a stock. Also, with changing accounting rules, P/E or P/B can often mislead investors and lead to value traps.
In the quest for better ways to measure value, the simplest approach that comes first in our mid is PEG ratio.
The PEG ratio is defined as: (Price/ Earnings)/ Earnings Growth Rate
A lower PEG ratio is always better for value investors.
While P/E alone fails to identify a true value stock, PEG helps to find the intrinsic value of a stock.
Unfortunately, this ratio is often neglected due to investors' limitation to calculate the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It doesn't consider the very common situation of changing growth rates such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate in the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.
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