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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 ?
Steve Edwards was the nearest challenger with 52-10-0 from peg E2 and John Lavender (Boxley) took third spot with 48-2-0, two pegs away from the winner.
Gary Lewis netted a big chub and added a couple of grayling to win with 7lb 10oz; on the next peg Colin Whitehouse put two chub on the scales for 7lb 7oz and second place and two pegs away Dave Loader was third with 6lb 4oz.
He took 39-6-0 to the scales with the nearest challenge coming from two pegs away, where Craig O'Brien (Fast Feeders) had 37-14-0.
Another local angler John Kelly was there on peg 60 in the back bay and came second with 39lb 8oz and a few pegs away Howard Green, from Pontllanfraith, finished third with 37lb.
Also at Saxon Mill, Alan Narbeth (Gloucester) was fourth with perch on chopped worm for 8-8-0, ahead of Bill Danes (Warwick Select), who took caster-fed roach worth 7-6-0 from Avon Street, where he was five pegs away from the winner.
Alan Davies, from Trealaw, was three pegs away and second with 127lb and Pontllanfraith's Howard Green third with 101-8-0.
Four pegs away, Evesham's Alan Cooper (Bait Box) targeted skimmers to 12oz using squatt for his second-placed 7-14-4.
Russell Palmer, from Rhiwbina, was three pegs away and runner up with a 41lb 5oz mixture of bream and carp on pole and pellets and Newport member John Mack third with 33lb 4oz.
Goole's Richard O'Connor (Van den Eynde) took silver medal from three pegs away wirth 13-9-0 using similar tactics.
Cwmbran Angling Nob-blers member Chris Hall was three pegs away and caught 46lb of bream for second place while on the opposite bank Pontllanfraith's Howard Green finished third with 35lb 12oz.