- Tech companies in investment arms race
- Small-cap growth plays should offer a risk premium
Tempering optimism is important when analysing shares based on analysts’ forecasts of earnings growth. It’s also worthwhile to consider the effects of cyclicality or periods of disappointment when judging how that growth should be valued. For this reason, we look at two versions of the share price-to-earnings growth rate (PEG) ratio in our growth at a reasonable price (GARP) screen.
The most straightforward is the forward PEG which, in our screen, we apply based on the Year 2 PE (i.e., based on forecast earnings for the year after the current unreported year) divided by the growth rate in earnings to that time. Based on this, stocks on our US screen like Facebook owner and web tech development company Meta Platforms (US:META) look cheap.
