REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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PEG
and Provisional PEG
Price-earnings
growth factor (PEG)
The PEG
factor measures the relative cost of earnings growth at the
current share price. It is therefore only relevant to those
shares which can truly be considered to belong to ‘growth’ companies.
The PEG factor
is simply the price-earnings ratio (‘norm PER’) divided by the
earnings growth rate (‘norm EPS growth’), and is calculated
as follows:
Year 5:
(based on latest reported results)
HISTORIC
NORMALISED PER
PEG = ----------------------------------
HISTORIC
NORM EPS GROWTH
Year 6:
(based on forecast results for current year)
FORECAST
NORMALISED PER
PEG = ----------------------------------
FORECAST
NORM EPS GROWTH
Year 7:
(based on forecast results for next year)
FORECAST
NORMALISED PER
PEG = -----------------------------------
FORECAST
NORM EPS GROWTH
The calculation
of each element is explained under separate headings Norm
(normalised) EPS growth and Normalised
PER.
The
REFS definition of ‘growth’ companies
A PEG
is only calculated where a company meets all of the following
criteria:
there
must be broker forecasts available
there must be continuous growth in normalised EPS for the
last four consecutive periods,
including any forecasts companies
in Building & Construction, Building Materials & Merchants
and Vehicle
Distributors, which are all highly cyclical sectors, may not
have incurred a
loss or suffered an EPS reversal in any of the last five years
of reported results each
of the last five normalised results must be positive, i.e.
none may show a loss
where
four periods of growth follow a previous setback, it must
have achieved, or be
expected to achieve, its highest normalised EPS (whether historic
or forecast) in the latest period out of the last six.
For recently
listed shares, the consecutive periods may include figures
based on information taken from listing prospectuses.
(NOTE:
PEGs are not calculated for companies in the Property sector.)
Provisional
PEG
A provisional
PEG is calculated when the stringent criteria for awarding
a PEG, as outlined above, are forecast to be met by the
next preliminary results announcement. This presumption
rests entirely upon the next results matching brokers’ current
expectations. Thus the consensus forecast for EPS growth
must be met, or exceeded, by the actual results next due,
otherwise a PEG will not be awarded at that time.
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