I bring solutions like the Boom-wow
So I saw a pretty interesting idea at this seeking alpha post. Mostly this came to my attention because I bought some stock in an ETF that tracks Singapore’s stock index (EWS). I didn’t commit enough money to it, blah blah blah, but it’s there.
As mentioned before, PEG can be an interesting tool for evaluating the “value” of a stock. No one ratio can ever tell the whole story, but a PEG of less than 1 inspires a bargain hunter while a PEG of greater than 1 raises the eyebrows, or at least that’s the basic theory.
So I decided to duplicate the Seeking Alpha idea, but add a little bit of twist to it. I kept the PE numbers from the original, but used GDP (real) growth forecasts from economist.com. “Real” means “adjusted for inflation.” Also, I included forecasts for the next 5 years, then annualized the growth estimates. Next, to account for the fact that a forecast for 2012 is much less accurate than a forecast for 2008, I also did a time biased growth estimate:
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2008: 100%
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2009: 90% (-10)
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2010: 75% (-15)
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2011: 55% (-20)
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2012: 30% (-25)
There’s no particular justification for the biasing, just a crude attempt to reflect the increasing speculative nature as the horizon moves out.
Below is the chart containing both the straight annualized and time biased national PEGs. I’ve highlighted in green those countries who’s PEG was noticeably improved by the time biasing and yellow those who were hurt by time biasing (meaning they were relying on higher growth four and 5 years in the future).
The average straight annualized PEG is 5.04, the average time biased PEG is 5.14. So, these PEGs aren’t really working on the same scale as normal corporate PEGs (which is centered on 1, in theory), partly because corporate growth forecasts aren’t usually adjusted for inflation, while real GDP is.
I’d be interested in ways that this might be improved, if anyone has any ideas.
Good times,
leap day
