“People are much more interested in the price-to-earnings-growth ratio (PEG) than they were five years ago,” says Grace Keeney Fey, portfolio manager at Boston-based Frontier Capital Advisors.
Indeed, the PEG ratio, calculated by dividing a stock’s estimated price-to-earnings multiple by its long-term growth estimate, is routinely discussed on several investment-oriented Web sites.
Why all the attention? By giving a sense of how a stock trades relative to its long-term growth potential, the PEG helps investors sniff out potential bargains among stocks that are richly valued on a price-to-earnings ratio (P/E) basis. Plus, there’s simplicity–a widely used rule of thumb says that a stock is undervalued if its PEG falls below one and overvalued if above one.
Given the market’s jumpiness over the past two months, Wall Street pros say that investors should pay extra attention to the quality of earnings estimates and growth forecasts when making decisions based on a PEG figure. “You have to be sure of those earnings,” says Fey, who adds, “You’re dealing with high-multiple stocks and, these days, there’s no mercy for disappointments.”
Full story at Forbes.com
Posted by Gillies on November 30, 2000
NEW YORK – Since April, the S&P Medical Products and Supplies index is up 17% versus the Nasdaq’s 19% decline. IBES International analysts project profits for this group will grow 18% this year and 25% in 2001.
Unlike manufacturers of prescription drugs and providers of health-care services–which are facing increased political pressure and government scrutiny–the medical supplies industry hasn’t been subjected to the same cost-cutting demands. “There’s not a lot of Medicare and other regulatory risk now,” says Glenn Reicin, managing director at Morgan Stanley Dean Witter, about medical supply companies.
Haemonetics (nyse: HAE – news – people) recently had some good news from federal regulators: The company won clearance from the Federal Drug Administration to market a blood filtering system that could double the number of red blood cells harvested from a blood donor. For the quarter ending Sept. 30, Haemonetics’ earnings rose 25%, to 26 cents a share, over the same period last year. (Note: Latest results are before a one-time charge attributed to the acquisition of Transfusion Technologies.) Haemonetics shares trade at just 18 times estimated 2001 earnings of $1.40 a share.
Full story at Forbes.com
Posted by Gillies on November 7, 2000