Here’s a stock picking tool you might not have thought about. It’s called the PEG ratio. The PEG ratio is a ratio of two ratios.
The numerator, or top line, is a stock’s price/earnings ratio, expressed simply as a number. This is the stock’s price divided by per-share earnings. If Superlative Entertainment shares sell for $40 and the company’s profits are $4 a share, the price/earnings ratio is 10.
The denominator (divisor, or bottom number) is the stock’s growth rate, expressed simply as a number. If Superlative Entertainment is growing its earnings at 20% a year, the denominator is 20. So, Superlative Entertainment’s PEG ratio would be 10 divided by 20, or 0.
5. That’s a very good ratio indeed. The classic way to use the PEG ratio is to look for stocks with a PEG ratio less than 1.
0. Only about 10% of U.S.
stocks currently can jump that hurdle. Here are five I think deserve consideration as buys. Applied Materials Applied Materials Inc.
(AMAT), based in Santa Clara, Calif., is the world’s second-largest maker of semiconductor manufacturing equipment. The largest is AMSL Holding NV (ASML), with headquarters in the Netherlands.
Applied Materials sells for about 19 times earnings, and its five-year earnings growth rate is about 21%. That produces a PEG ratio of 0.90.
The question is whether the company has hit a wall. Last year, growth slowed to 3% for revenue and 6% for profits. If the current trade tension between the U.
S. and China turns into an outright tr.
