Adjusting P/E Ratios by Growth and Risk: The PERG Ratio
IESE Business School
EFMA 2003 Helsinki Meetings
P/E ratios are one of the tools most widely-used by analysts and the key variable in many value strategies. PEG ratios, an increasingly-popular valuation tool among analysts, improve upon P/E ratios by adjusting the latter by growth. This article proposes a new tool, the PERG ratio, that adjusts P/E ratios by both growth and risk, or, similarly, PEG ratios by risk. The evidence reported shows that PERG-based value strategies outperform, on a risk-adjusted basis, value strategies based on P/E ratios and PEG ratios.
Number of Pages in PDF File: 17working papers series
Date posted: May 6, 2003
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