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5. PEG Ratio - SMARTMONEY STOCK SCREEN Bargain Growth...

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DOW JONES REPRINTS This copy is for your personal, non- commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com . See a sample reprint in PDF format . Order a reprint of this article now . October 19, 2006 SMARTMONEY STOCK SCREEN Bargain Growth Stocks By JACK HOUGH October 19, 2006; Page D3 The price/earnings ratio is less telling than some investors believe. A low one doesn't mean a stock is cheap. It could mean the company is deeply flawed or that it operates in a slow- growth industry. In broad studies low P/E shares outperform high P/E ones, but that's little help in trying to tell whether a stock is a bargain. The PEG ratio is a bit more useful. It divides a stock's P/E by the rate at which analysts expect the company's earnings to grow over the next several years. A stock with a P/E ratio of 18 and a projected earnings growth rate of 12%, for example, has a PEG of 1.5 (about the broad market's average). One with the same P/E but projections for half of the growth has a PEG of 3.
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