(EPS) CAGR

 Investors ignored here, a more crucial factor, namely the company's growth. The stock market is valued as a Selection Index is the PEG, the current price-earnings ratio divided by the next 3 or 5 years, earnings per share (EPS) CAGR This is the investment guru Peter Lynch invented b stock selection indicators.
PEG to the company's valuation and growth combined, it is used to describe a logical relationship between the investment's share price may reflect mm now the company's future earnings growth? such as a company's stock is now trading at 20 times earnings, future EPS growth rate of 20% of the company, the PEG is 1, indicating that stock price reflects its growth, the current inexpensive not cheap; if the future EPS growth 40%, then PEG is 05, shows the current stock price significantly undervalued the company's growth performance has good investment value; but if the future EPS growth rate of only 10%, PEG up to 2, then the value has been overvalued, the stock has dropped the internal needs. In addition, PEG can be in the same comparison between the stock plate to find out what stock price is relatively undervalued, more investment value. we will detail in later chapters PEG valuation method introduced.
go back to the example above. The company's growth has been not very prominent in the past, when we judge the performance of the company's 2006 growth appears to be only a few (in fact the company significant decline in 2006 results). Even if we optimistically estimated EPS growth rate next 3 years the company can reach 10%, PEG at current market prices for the 117, is not attractive. and probably its future EPS growth rate has not yet reached 10%, the assumption is 5%, the PEG up to 234, indicating that the current stock price has been too high. This is why institutional investors are not keen to intervene at the reasons for the stock, unless the market, most expect there will be high growth performance of the company, or shares it is difficult to rise. So, just to valuation through the price-earnings ratio is sometimes inadequate, but also must combine the company's growth, which is why the steel stocks have under normal circumstances, only 10 times earnings, while high-tech, new energy stocks to 30 times price-earnings ratio can be even higher because, truth to the people for their differences on the expected growth. From the above example, we can understand the stock selection The key is what it is. valuation, it sounds Xuan Hu, in fact, it is not difficult to do, which industry or company several times the price-earnings ratio should have a ready reference to the valuation range, up to discounted cash flow model (DCF) and other absolute stock valuation method to measure the intrinsic value of what you can, we will choose the book shares some of the industry to do a comprehensive introduction. picking the real difficulty and the key is to judge the company on growth. Investors need to spend more energy to study and grasp the business cycle, product cycle and the change of earnings cycle changes, understand the company's marketing products or business conditions, changes in cost and profit margin trends, these factors ultimately comes down to the company on profitable growth . This is the basis for the formation of investment decision. Apart from not taking into account the company's growth led to stock selection turnovers, many investors do not realize that at different stages of development the industry or the stock markets also have different characteristics, but simply using the same scale, with a standard stock selection, such as using indicators of profitability and cash flow as a stock picking criteria, so it is easy to find some really nice texture, good company, but its stock price in the stock market Sometimes the performance is not necessarily consistent with the prevailing situation of the broader market.
we are very familiar with such an established blue chip companies mm Foshan Lighting (000 541) .2006 The steady growth for the company, only 10 times earnings, the stock look like investment in stocks will produce errors? We believe that, in simple terms, that is, buy a bull market in stocks do not meet the bull market characteristics. Foshan Lighting from its long-term fundamentals of the market view is defined as a defensive-type stocks and income , in the bull market of professional investors are not normally choose this type of low-risk stock. but in a bear market or oscillations in performance fluctuations such as Foshan Lighting little dividend yield of 5% or more of the stock market would be of all ages. For example, in early 2007, significant oscillation A shares, the uncertainties of the stock market environment, the other bull breeds and are underperforming the broader market, almost standing still, and Foshan Lighting gave investors more than 30% return. In addition, investors do not understand some of the characteristics of the industry cyclical stocks, but also easy to buy at the wrong point in time the wrong stock. For example, in the steel industry in the economic downturn or a period of uncertainty, steel stocks price-earnings ratio can only remain in the single digits, if investors think that they are Most ordinary investors, if you want to share operational strategies through active or at least be better than the broader market simultaneously with the broader market return on investment, we must first avoid making the common mistake, to know what market conditions in the focus of attention should go to What types of stocks, so you have to master the fundamentals of the company and industry analysis, valuation and investment strategies of knowledge can lead you to find the really good companies and good stocks.