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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 ?
IN STORE: Kate Fearnley is moving all of her off-the-peg stock to a new concession area in Psyche on Linthorpe Road, Middlesbrough.
The M&S made-to-measure scored eight, the Tailor Store shirt seven, the 40 Savile Row version four points while the M&S off-the-peg did not win any points at all.
Austin and Pickersgills have beaten off strong Japanese rivalry to win firm orders for off-the-peg SD14 cargo ships, which will guarantee jobs until the middle of 1978 1983 Talks were taking place this afternoon at the offices of ACAS, in attempt to avert the threatened world-wide strike by 28,000 members of the National Union of Seaman over the crewing of the troopship Keren.
TO celebrate 10 years in the industry, Middlesbrough fashion designer Kate Fearnley is charging 2002 prices for all her off-the-peg designs - including those from her current collection - this week only.
BRITAIN'S biggest off-the-peg suit has gone on sale following an increase in demand for supersize clothing, The massive XXXXL suit, which comes with 64-inch chest jacket and 60-inch waist trousers, is wide enough to comfortably fit two normal-size adults inside.
Buy off-the-peg or have one custom-made in your chosen colour to suit your space.
In fact, so much Shaw survives the transformation - his curmudgeonliness a useful counter to some off-the-peg Cockney whimsy - that a production of Pygmalion these days can seem like My Fair Lady without the songs.
The practice is working on a major housing development in Cambridge and plans to incorporate off-the-peg brass cladding panels (developed by copper specialists KME) in a six-storey apartment block.
Centre director Jane Davies said: 'Business leaders don't correspond to off-the-peg labels, so why should development programmes' This recognition is at the heart of our philosophy.
Lopez, 35, who already has an off-the-peg fashion range, was less extravagantly dressed in belly-baring white trousers and sweater.
Off-the-peg and design-your- own rugs are available at each of Maskreys stores in Cardiff, Newport and Bristol.
OFF-THE-PEG reading glasses are not always as sharply focused design-wise as they could be, but Next has done a pretty good job with these.

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