# peg

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## Pegging

1. The practice of fixing the exchange rate of a currency to the value of another currency. Most countries that peg their currencies do so to the U.S. dollar, though some peg to currency baskets. See also: Fixed exchange rate.

2. The act of buying a security in a large quantity to drive up the price. Writers of put options (and holders of short positions) practice pegging when the expiration date is approaching and it appears that the option will be exercised such that it puts the writer at a disadvantage. The idea behind pegging is to cause the price to rise so the option is not exercised and the writer can profit from the premium.

## Price/Earnings-to-Growth Ratio

A ratio of a stock's valuation, that is, how expensive a stock is relative to its earnings and expected growth. It is calculated as:

PEG = Price/Earnings/Annual Earnings Growth per Share

A lower ratio indicates a less expensive stock with higher earnings and growth, while a higher ratio indicates the opposite. According to Peter Lynch, who popularized the ratio, a fairly priced stock has a ratio of 1.

## peg

1. To fix the price of a new security issue during the issuance period through buying and selling it in the open market in order to ensure that the price in the secondary market will not fall below the offering price. Also called holding the market, price stabilization, stabilize. See also stabilization period.
2. To fix the rate at which foreign currencies exchange with one another.

## Price/earnings-to-growth ratio (PEG).

To find a stock's PEG ratio, you divide the stock's price-to-earnings ratio (P/E) by its projected annual earnings per share (EPS) growth. The result is a rule-of-thumb assessment of whether the stock is overvalued or undervalued.

In brief, if a stock has a PEG ratio of 1, you conclude that investors are paying what the stock is worth based on its P/E and growth potential. If it is higher than 1 -- say 1.55 -- you conclude that investors are paying more than the growth projection justifies. If it is less than 1, you conclude that the stock may be poised to appreciate in value and so a wise purchase.

However, a PEG ratio, by itself, does not provide an adequate basis for an investment decision, any more than a P/E does, because it doesn't take company fundamentals into account. For example, an under-priced stock may be a good buy, but it may also be the sign of a company in poor financial shape or an industry in trouble.

The potentially greater problem is that growth projections, even when they are the consensus finds of professional analysts, are just estimates. That is especially true of estimates that look out five or more years, since there is no way to anticipate the shifting marketplace with real precision. Yet projections based on a single-year's results are notoriously inaccurate.

In short, a PEG ration can be a valuable addition to an investor's toolkit, provided you understand the assumptions on which its components and results are based.

References in periodicals archive ?
Like most people, I had never really given a second thought to the wooden clothes peg,' said Ivor, a retired chemist from Tamworth, Staffordshire.
On Nose Peg Day the public should be encouraged to wear an emblem of a large nose, preferably in a grubby brown colour wrinkled against the smell, with a clothes peg firmly clipped on it.
Her device has a registered design and is a clever alternative to the conventional clothes peg.
If they come up with a clothes peg sub-plot in the next five years, I hope they will let me know.
The former world No1 has not finished out of the top six in the last six years and has four green jackets to his clothes peg.
CLOTHES peg sales have risen for the first time in almost 50 years.
Their bizarre array of musical instruments includes a bat detector, a typewriter and a giant clothes peg.
She had been rummaging for food in a clothes peg box but emerged with the plastic ball - used in washing machines - stuck on her head.
So I'll very likely clip a clothes peg on my nose and back change in the May 5 election.
To his surprise, it landed plumb on target, but even more incredible, still blinking through moistened eyes, Biggs saw Benja stiffen as he fell like a clothes peg on to his back on the floor.
I'd go into the changing room and there would be a picture of a monkey stuck over my clothes peg.
Just off now to get a clothes peg for my nose as there is a whiff of hypocrisy coming from somewhere.

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