Looking for possible wealth creators? Keep an eye on the PEG ratio
Adani Enterprises has emerged as the most consistent wealth creator for the second successive time in Indian equities in the last 5 years, showed Motilal Oswal's wealth creation study. The stock has outperformed the BSE Sensex in all the last 5 years and has the highest price CAGR of 97%. Consistent wealth creators are based on the number of years the stock has outperformed in each of the last 5 years. Where the number of years is the same, the stock price CAGR decides the rank. Take a look at the most consistent wealth in the last 5 years with key indicators.
Synopsis
The issue with the PE ratio is that it creates a problem in terms of buying as well as selling. Because the P/E of a company is high, it often leads to selling wealth creators early, and then regretting or buying them at a point when they are expensive in real terms. Although it has its own limitations, it would still be better to use PEG ratio.
Right from investor presentations to research reports, the price earning (PE) ratio is one of the most overused and misused ratios in the valuation matrix. It is used widely to justify valuations and create a mirage of value. But is this the right matrix to look at? The answer is no. There is a better option. Given the huge difference in what is value and what looks cheap due to one financial ratio, often relying on PE may lead to the wrong
BY
Shakul Gupta
ETMarkets.com
11 mins read, Last Updated:
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