Most investors see a stock chart trading near highs and think they’ve missed the boat on the underlying opportunity. While that is sometimes true, there are times when the initial breakout is only the beginning of a much broader move in the future. As it turns out, there is one key financial ratio that investors need to always keep in mind to figure out whether the move is in its early stages or already done.
This ratio is the price-to-earnings-growth (PEG) ratio, and its purpose is solely to account for today’s valuation multiples about tomorrow’s expected earnings per share (EPS) growth. It makes absolute sense since investors are often willing to pay for a stock based on what they think it will generate in earnings in the future, making it highly reliable.
