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Saturday, May 1, 2010

What is PEGGY Ratio Method

Rather than just rely on PE ratio, or now the trend is PEG ratio, we also need to evaluate gearing and dividend yield. I try to make things easy for you all to remember, so I come out PEGGY method to evaluate a company.

PE G G Y

PE is PE ratio. The lower the better.
G is Growth, expected long term growth rate eg 15%. The higher the better
G is gearing, the lower the better, best is net cash
Y is yield, ie dividend yield. The higher the better

All are important. More than 10 years ago I just look at PE, which is not enough.
Now people like to use PEG, that is using PE ratio divided by growth rate. The lower the better. But also not enough. Many don't bother about gearing.
Some investor just look at Dividend Yield.

You need to consider all. So, I advise you to use my PEGGY method
Just remember PEGGY, easy right.

If your remisier ask you to buy Genting International Ltd Singapore or IOI Corp, you can start asking him, what is the PE? Then ask him what is expected growth rate? How about gearing? Is dividend yield high?

3 comments:

  1. Nice. I like it because it is very simple. I normally use PE or dividend only. I'll start using it. PEGGY, very easy to remember

    ReplyDelete
  2. Sorry but I new here.
    Where I can get the values? especially Growth and Gear?

    ReplyDelete
  3. The growth and gearing can get it from analyst report.

    Growth is future growth, we are not analyst, so we are unable to forecast. Have to refer to analyst report.

    As for Gearing, the formula is long term debt divided by shareholder equity, you can get it from the company announcement in Bursa website. The formula, some people use all debt, some use net debt. Not really an issue, important is whether the company borrow too much money or not.

    Can refer to my LABLE titled peggy method or link http://politemarket.blogspot.com/search/label/Peggy%20Method

    PoliteMarket

    ReplyDelete

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