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Stocks Promising Growth At A Reasonable Price
Education | 08 September 2011
By: jason.liew
Articles (66) Profile

By Glenn Ho

Investors love companies that are growing, and growing fast. Very often, such companies are very expensive. Take Baidu for example, China’s very own Google; it is currently trading at 64 times earnings. This means that for a dollar of earnings, Baidu investors are today paying $64. The P/E ratio of Google is only 19 times earnings as we type. Why is Baidu more expensive? Because China’s internet population and searches are expected to grow at a much faster rate compared to Google’s users.

How then do we find affordable companies that are growing fast? This is the question on a GARP investor’s mind. GARP (Growth At Reasonable Price) investors seek out stocks selling at low PEG (price-earnings-to-growth) ratios.

The PEG ratio is used to determine a stock’s value while taking into account earnings growth. For example, a stock with a P/E of 18 growing earnings at 10% per year will have a PEG of 1.8. The lower the PEG, the less we are paying for future growth. The higher the PEG, the riskier the stock is because of the dual sensitivity to both changes in current earnings and future growth.

The objective for a GARP investor is to seek out stocks with low PEG ratios and avoid stocks with high PEG ratios. In doing so, they pick stocks that are growing fast, and at the same time affordable.

AsiaPacFinance.com has picked out the Singapore Stock with the Lowest PEG ratio: Yongmao Holdings Ltd.

This company designs and manufactures construction equipment such as tower cranes, components, and accessories. Yongmao’s share price is $0.14, market capitalization is $62 million, and PEG ratio is only 0.04, based on Bloomberg’s Estimated Long Term Growth rate.

Glenn Ho is Director at AsiaPacFinance, serving retail investors globally through Research, Trading Strategies, and Investment Seminars. The financial portal collaborates with banks and brokerages by providing technical analysis and investor education across asset classes. AsiaPacFinance is also the first company to invent a stock screener that combines both fundamental and technical analysis. You can reach Glenn at AsiaPacFinance.

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