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Thursday, May 6, 2010

How to get PEGGY Figure

PE: You can not take PE from newspaper. Old data. Can be used as reference to support only.

G: Growth rate of the net profit. Expected long term growth. Normally forecast 2-3 years. Nobody can really forecast with 100% accuracy and more than 3 years. Most analysts, their accuracy is about 70%. They will adjust their forecast quarterly when the result is out.

G: Gearing. For formula, people use Long Term Liabilities divided by Equity Shareholders' Funds. You can look at balance sheet to find out the figure. Old data never mind, because changes are normally
minimum Every quarter. Now quite common people use Total Loan minus out cash and cash equivalent, then divide by Equity Shareholders' Fund

Y: Yield, dividend yield. You can not take from newspaper. Old data. Can be used as reference to support only. You can also find out the dividend payout ratio policy. If 40%, means if they earn RM1.00 per share, they will pay out RM0.40 dividend (refer my post on payout ratio).

PE, Growth and Yield, you need to take forecast. Historical data use as reference to support and is important to serve as track record. Gearing can take current, but preferably forecast, if available.

Conclusion: PEGGY Method rely on forecast figure. But how to get? Have to refer analysts or research report. Most brokers have their own research report available to clients. They have done all the hard work. Just take out the report and just check out the PEGGY figure, quite fast and simple.

Many people make a lot of money without using PEGGY method. They buy low and sell high, then buy low again and sell high again. But I am not good at that. So PEGGY is useful for me.

Hope this help. Feel free to ask more if need more clarification.

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 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?



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