# 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 ?
LINE HANGER: Una's invention is a clever alternative to the conventional clothes peg
What is important is that this queen of the clothes pegs is in all other respects absolutely normal - which makes her pegs fixation all the more fascinating.
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.
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.
"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.
Tamworth businessman Ivor Langford is set to change the face of washing lines with a new clothes peg.
FLAMING GOOD TIME Larking around by the campfire ROAD SHOW Kate slips out of coat for shoot CLOTHES PEG Kate poses on colourful caravan
There is also a rather nice clothes line reminiscent of "Sing a Song of Sixpence" on which you could hang your thoughts using pink, yellow and blue paper birds and a wooden clothes peg!
The latest Millennium Products also include an idea from Lubstree Park Farm in Telford, which has invented a new type of polystyrene strawberry tray and the one-piece plastic clothes peg from Technical Moulded Systems of Tamworth.
ROAD SHOW Kate slips out of coat for shoot FLAMING GOOD TIME Larking around by the campfire CLOTHES PEG Kate poses on colourful caravan
Ancient treatments included putting a clothes peg on the nose - but as well as being painful and unlikely to last the night, this would only work if the person snored through their nose...

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