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    This ratio gives better guidance for long-term investors

    Synopsis

    Given the fact that it is one of the easiest to calculate and understood by the majority of investors. Whether it is an analyst report or company’s presentation, it is very likely that price earning (P/E ) ratio might have been used to justify either a buy or sell recommendation. But there is a better ratio than this P/E, that is the PEG ratio. PEG ratio is a complex process and comes with its own set of challenges. However, even with these challenges, it is worth looking at PEG ratio before taking a long term investment decision.

    It makes sense to pay more for a stock whose earnings grow at a faster rate. Now, how much more should be paid would be determined by dividing a company’s PE multiple with its growth ratio. But growth is a function of many variables and that is the challenge that one needs to navigate. But the effort saves trouble that many may face later on. Especially in sectors like banking and financial services which have large numbers of stocks which on
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    The Economic Times