One of Peter Lynch’s Top Metrics Shows Stocks Getting Cheaper
- PEG ratio has fallen over last two years despite equity gains
- Analysts are bucking 7-year trend and raising profit forecasts
This article is for subscribers only.
By virtually any measure, U.S. stocks are expensive. Under one especially harsh lens, the cyclically adjusted price-earnings ratio popularized by Robert Shiller, equities relative to 10 years of profits are more stretched than any time in a century, save the dot-com era.
But there’s still a methodology that bulls can take comfort in -- price not just to earnings, but to earnings growth. Favored by legendary investor Peter Lynch and known as the PEG ratio, the technique takes the standard valuation snapshot and adds time -- time for a stock to grow into its price.