Pegging Down a Company's Profit
By Andrew Gordon
Top portfolio managers like Peter Lynch place a good deal of stock in the PEG (price-to-earnings-to-growth) ratio, which is supposed to tell you how fully valued a company's share price is.
Their reliance on this ratio is misplaced, however.
The PEG compares the company's price-to-earnings (P/E) ratio with its earnings-per-share (EPS). It tells you what investors are willing to pay for every dollar of earnings the company brings in. The EPS tells you how much of the company's profit is being budgeted to each share of outstanding stock and is thus a benchmark of company profitability.
A PEG higher than 3 is probably a sign that you should look elsewhere. A PEG below 1 could be telling you that the company is undervalued. You may be looking at a real gem ... OR NOT. Instead, you may be looking at a company that had a one-time event that spiked income (like the sale of an asset or a tax break) or a one-time event that dropped income (like the closing of a plant). Either way, net income can be very misleading.
I prefer looking at cash flow (CF). It mainly consists of cash generated from operations. There are no write-offs or phantom income in cash flow. If CF is more than 10 percent of what investors are willing to pay for the stock, you're looking at a company flush with money. Period.
You can punch up the PEG ratio on most stock screeners such as Yahoo! Finance. The price-to-cash-flow (P/CF) ratio is usually a no-show, but Reuters' finance section includes it. And it's worth paying attention to. This is the ratio that will give you a better insight into whether a company is a clunker or a potential big winner.
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Reader Feedback: "Maybe this is a health tip you can pass along."
By Jon Herring
Spring is here and summer is right around the corner. And for millions of people, that means itchy, red eyes, a stuffy nose, sneezing, and a sore throat. My father has suffered from hay fever (an allergy to plant pollen) for years, so I know that it can be maddening ... even debilitating. If you have pollen allergies, here's an idea from an ETR reader that might help ...
After reading my health brief in Message #1689, DA wrote:
"I'm writing in response to your article on the topic of allergies (hay fever, in particular). Several years ago, my office-mate suggested I use locally produced honey in tea for several days to inoculate myself against hay fever. [Locally produced honey is more likely to contain the specific pollen allergens that you are exposed to.] In short, I tried it and - after suffering through a few days of intense hay fever - the last 7 years have been hay fever free. It worked for me. Maybe this is a health-tip you can pass along."
Though I'm not aware of studies, there is a lot of anecdotal evidence that DA's treatment works for some people. And in contrast to antihistamines and nasal sprays that only address symptoms, this natural remedy addresses the cause - your own immune response. Use raw (unheated and unfiltered) honey that is produced within 50 miles of where you live - and maybe this will be your last season of hay fever. If not, you'll still have a delicious, nutritious jar of honey.
__________________________________________________
These articles appear courtesy of Early to Rise [Issue #1697, 04-07-06], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.
Top portfolio managers like Peter Lynch place a good deal of stock in the PEG (price-to-earnings-to-growth) ratio, which is supposed to tell you how fully valued a company's share price is.
Their reliance on this ratio is misplaced, however.
The PEG compares the company's price-to-earnings (P/E) ratio with its earnings-per-share (EPS). It tells you what investors are willing to pay for every dollar of earnings the company brings in. The EPS tells you how much of the company's profit is being budgeted to each share of outstanding stock and is thus a benchmark of company profitability.
A PEG higher than 3 is probably a sign that you should look elsewhere. A PEG below 1 could be telling you that the company is undervalued. You may be looking at a real gem ... OR NOT. Instead, you may be looking at a company that had a one-time event that spiked income (like the sale of an asset or a tax break) or a one-time event that dropped income (like the closing of a plant). Either way, net income can be very misleading.
I prefer looking at cash flow (CF). It mainly consists of cash generated from operations. There are no write-offs or phantom income in cash flow. If CF is more than 10 percent of what investors are willing to pay for the stock, you're looking at a company flush with money. Period.
You can punch up the PEG ratio on most stock screeners such as Yahoo! Finance. The price-to-cash-flow (P/CF) ratio is usually a no-show, but Reuters' finance section includes it. And it's worth paying attention to. This is the ratio that will give you a better insight into whether a company is a clunker or a potential big winner.
______________________________
Reader Feedback: "Maybe this is a health tip you can pass along."
By Jon Herring
Spring is here and summer is right around the corner. And for millions of people, that means itchy, red eyes, a stuffy nose, sneezing, and a sore throat. My father has suffered from hay fever (an allergy to plant pollen) for years, so I know that it can be maddening ... even debilitating. If you have pollen allergies, here's an idea from an ETR reader that might help ...
After reading my health brief in Message #1689, DA wrote:
"I'm writing in response to your article on the topic of allergies (hay fever, in particular). Several years ago, my office-mate suggested I use locally produced honey in tea for several days to inoculate myself against hay fever. [Locally produced honey is more likely to contain the specific pollen allergens that you are exposed to.] In short, I tried it and - after suffering through a few days of intense hay fever - the last 7 years have been hay fever free. It worked for me. Maybe this is a health-tip you can pass along."
Though I'm not aware of studies, there is a lot of anecdotal evidence that DA's treatment works for some people. And in contrast to antihistamines and nasal sprays that only address symptoms, this natural remedy addresses the cause - your own immune response. Use raw (unheated and unfiltered) honey that is produced within 50 miles of where you live - and maybe this will be your last season of hay fever. If not, you'll still have a delicious, nutritious jar of honey.
__________________________________________________
These articles appear courtesy of Early to Rise [Issue #1697, 04-07-06], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.
posted by Oak Stone at 6:46 PM
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