Same sticker . different engine
The top row matches. The growth line splits them.
| |
Stock Afast grower |
Stock Bslow grower |
| Price to earningswhat you pay for Re 1 of earnings |
20 |
20 |
| Earnings growth a year |
24 pct |
8 pct |
| PEG . P/E over growthnear 1 is roughly fair value |
0.83 |
2.50 |
| Effective P/E in 5 yearsprice held . earnings compound |
6.8 |
13.6 |
Same 20 at the top. Stock B carries three times the PEG. Hold five years and let the earnings grow and Stock B is priced at exactly twice Stock A on the money you put in.