The tables of shares with the lowest PEGs for growth companies are my favourite hunting ground for candidates for my growth share portfolio. I designed the tables to give subscribers as much information as possible about the other selection criteria that I regard as important. All of them are highlighted in my recent book Beyond The Zulu Principle.

The first point to bear in mind is that a PEG is only a quick rule of thumb figure to give you a fix on a share’s possible attractions as a candidate for a growth portfolio. A very low PEG can mean that danger is lurking beyond the horizon. A low PEG is not an end in itself – it simply triggers the thought that the shares in question are worth a much closer look.

The second and third columns of the market statistics are of critical importance. If the one-month relative strength is negative, it is usually sufficient to put me off buying shares. I prefer growth shares to be performing well at the time of purchase.

O’Shaughnessy’s research has also convinced me that the past year’s relative strength has to be positive. Usually I prefer it to be greater than the one-month relative strength, but if this is not the case, it is absolutely essential that the past year’s relative strength is greater than the past three-month relative strength.

The highs and lows column is always of interest. Many investors prefer to buy growth shares that are near to their highs. At least they know then that the momentum is with them.

The PER is always of interest. I prefer PERs in the 12-20 range and rarely buy growth shares on prospective PERs of over 20.

The prospective growth rate is of crucial importance. Reference should always be made to the company entry to see if the forecast compares well with the past.

The forecast one-month change column gives a quick idea of the revisions that have been made to the brokers’ forecast during the previous month. Major downward revisions are obviously bad news.

The ROCE column is important too and it should always be looked at year by year in the company entry. A return of 20% or more is the kind of target you should have in mind for a great growth share.

The last column showing the cash flow/EPS ratio is of great interest. The company entry should also be studied to determine if the previous year was a one-off or part of a trend. Companies with poor cash flow usually need frequent rights issues to top up their ailing liquidity. In the end the market gets wise to them and the shares become unwanted.

It is vitally important to remember that a study of the low PEG tables is only the first step in selecting a growth share. The low PEG attracts the eye and the key criteria can be quickly checked in the other columns. If they are all positive, the company entry should be the next port of call, followed quickly by the company’s accounts, brokers’ circulars and press cuttings.