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Growth bond |
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Growth bondA bond which gives capital growth at maturity.Similar MatchesPrice earnings growth factorPrice earnings growth factorThe PEG of a company is calculated by dividing its prospective P/E ratio by the estimated future growth rate in earnings per share of the company. So to calculate a PEG, you first need to calculate its P/E ratio.P/E = current share price divided by earnings per shareA company with a share price of 100p and earnings per share of 5p has a P/E ratio of 100/5 = 20.By itself the P/E ratio is a useful ratio because it shows how many times the current earnings the shares cost - in a sense, how many years you would have to wait to get your money back if the company paid out all its earnings to shareholders. But the limitation of the P/E ratio is that it looks at historical information and does not relate the price of the shares to its future performance. The PEG ratio builds in that extra layer of sophistication.Using the example of the same company, imagine that the consensus brokers' forecast for its future earnings growth rate is 15%.PEG = P/E divided by estimated future growth rateFor this company, the PEG would be 20 divided by 15 = 1.33.According to Jim Slater, the investor who popularised the use of PEG's as a stock share selection tool, a share with a PEG of 1 or lower is attractive. Put simply, the lower the PEG, the less you are being asked to pay for estimated future earnings. Jim Slater did not recommend use of the PEG as the only criteria of share selection. There are plenty of other fundamental checks that have to be made too.Note that the estimated future earnings are a critical part of the PEG calculation, and that if the forecasts made by brokers are wide of the mark, the PEG ratio will be unreliable. Because of this danger, most advocated of PEG's recommend using consensus forecasts, rather than the forecasts of any single broker/analyst. Growth and income fundGrowth and income fundA mutual fund or unit trust which aims to provide investors with a balance of income and capital growth. Guaranteed growth bondGuaranteed growth bondA bond in which a single premium secures a guaranteed amount at its maturity date. Growth stockGrowth stockCommon stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital. Growth investingGrowth investingThe approach to investing which aims to invest in fast-growing companies which are rapidly increasing their turnover and profits, and where the expectation is to make money from a rising share price (rather than income).The theory with a growth share is that the share price rise happens in two ways:firstly, through the multiplication of a static P/E on rising earnings per share. So a company on a P/E of 7 with earnings of 10p per share has a share price of 70p. If EPS rises to 15p, its share price rises to 105p.secondly, by a re-rating of the company's P/E multiple. In the case of the company above the earnings of 105p may be accompanied by a rise in P/E ratio from 7 to 10, in which case the share price rises to 150p.Growth investing is often contrasted with value investing. The traditional view is that:value investors look for shares that are cheap in relation to the net asset value of a companygrowth investors are only interested in earnings growthIn fact, there is common ground between the two. Value investors are very interested in earnings if they can acquire them cheaply enough (i.e. on a low P/E), and growth investors don't completely ignore things like company debt and balance sheet ratios.Nevertheless, there is an important underlying distinction between the methods:value investing is based entirely or mainly on quantitative criteria (numbers): on asset values, on cash flow, and on discounted future earnings.growth investing is based on qualitative criteria: on value judgements about the business, its markets, its management, and its ability to extract future earnings growth from its industry. Further SuggestionsNet present value of growth opportunitiesExogenous growth Engine of growth organic growth Growth fund Aggressive Growth Hedge Fund dividend growth Growth Endogenous growth Internal growth rate Growth accounting Economic growth rate Stability and Growth Pact Growth phase Export led growth Compound growth rate Sustainable growth rate Growth rates Neoclassical growth model capital growth Growth and income fund Full Employment and Balance Growth Act of 1978(Humphrey Hawkins Act) Capital growth compound annual growth rate Immiserizing growth |
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