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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 ?
Cefni became more workmanlike and able to keep Caernarfon pegged back in their own half From a scrum Cefni were awarded a penalty try and Hughes slotted the conversion to bring them back to within a point.
Sbragia's side were cruising by half-time - but in typical Scottish fashion they were pegged back within five minutes of the restart.
JAMES CONSTABLE rescued a point for oxford but was later sent off as Crewe were pegged back.
Richard Eaton and Andy McGill had set off like a house on fire, leading 8-1 and then 11-3 before being pegged back at 20-all against the visitors top pair.
Bayern Munich are 1-3 to win the Bundesliga after a 1-1 draw with Nuremberg, while leaders Leverkusen were unable to open a two-point lead after being pegged back by a late goal against Werder Bremen.
They were pegged back before the break through Craig Steins and, with the encounter heading for a draw, Llewellyn popped up for his fifth league goal five minutes from time to seal victory for the hosts.
Earlier, Warwickshire were pegged back when Nathan Newport and Navdeep Poonia perished early.
Nicky Gordon's strike looked to have given Bank the points but they were pegged back when Michael Fletcher netted from the spot.
The talented teenager boxed his way into a 7-1 lead after two rounds and, although McCallum pegged back three points in the last round, Robson was never in danger of surrendering his lead.
Holding a 1-0 advantage from the away leg, Sir Bobby Robson's men were pegged back through a Ivica Iliev goal.
Admission to the Vetch terracing for Saturday's game against Lincoln has been pegged back to pounds 5 and pounds 3 for concessions.
Alan Pardew's leaders twice led against Oldham Athletic through Jon Mackie (8) and Phil Parkinson (45), but were pegged back by Lee Duxbury (31) and Allan Smart (75).