# Advice on calculating a PEG ratio



## aaronphetamine (2 March 2008)

Hi Guys

Im trying to complete a comprehensive fundamental analysis of Suncorp-Metway and I'm a little confused while I'm trying to calculate the PEG ratio.

I would really appreciate some feedback on my calculations

 PEG ratio =  PE / Annual EPS growth          .. According to investopedia.com

I have calcuated Suncorps average PE for the period of July 06 - July 07 to be 13.28

And that leaves me with finding out the Annual EPS growth..

I know the EPS for 2006 was 1.61 while for 2007 it was 1.59 so to get the annual EPS growth for that period will mean I go

    1.61 / 1.59 = 1.01

Therefore the Annual EPS growth for that period was (1.01)%

So PEG = 13.28 / 1.01 = 13.11

13.11 is my final answer for the PEG ratio

Just that where ive been reading is that anything over 2.5 is bad, and here we have a highly profitable and successful company like suncorp with a PEG of over 13 ?

Thats why I think my calucation is incorrect ?

Can some one please run their own numbers or let me know if my calculations are correct and it is simply a matter of Suncorp having a high PEG ratio ?

Thanks in advance,
Aaron.


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## dhukka (2 March 2008)

aaronphetamine said:


> Hi Guys
> 
> Im trying to complete a comprehensive fundamental analysis of Suncorp-Metway and I'm a little confused while I'm trying to calculate the PEG ratio.
> 
> ...




Aaron,

PEG ratio on its own is of little use as the basis for an investment decision. It tells you next to nothing about the actual business. Run that same mertic on ABS and it looks very attractive. What happened to the share price of that company?


Eps growth 1.59/1.61-1 = *-1.24%*. PE/G 10/-1.24 = -805 which is meaningless, but you don't have to go through with the calculation once you know eps growth was negative. For what it's worth PE/G is usually calculated using the current PE (10) divided by the forecast eps growth, ie FY08 forecast eps growth, at least that's how it  was done when I worked in the industry. Although that doesn't help you much because forecast eps growth for FY08 is -18.4% according to consensus estimates supplied by Huntleys.


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