Blog by SEBI Registered Research Analyst – Shubham Rajendra Jain. Registration number- INH000013554.
In this blog, we will look into ratios more relevant than your P/E ratio for this result season.
This ratio is a derivative of PE ratio and is more relevant right now for comparison, to know if the result of the company is better then expected or not.
PEG RATIO
PEG ratio formula is [ (P/E)/Annual EPS growth ]
Which means if EPS is growing by 12% and P/E ratio is also 12, your PEG ratio would be 1. We just have to keep in mind the lower the PEG ratio the better, as you want the companies earning to grow faster than the P/E.
P/E ratio shows the expected growth rate discounted in the price. So for further increase in the share price, the EPS has to be higher than P/E. So your PEG Ratio has to be less then one. With this you can easily understand if the share performed better than market expectations or not.
So, this result season use this ratio in practice to know the results impact on the share.
You can also put the ratio on screener.in and see the impact on the shares in the screen.
This post is for learning purpose and is not giving any recommendation of buy/sell.