History of wealth creators: Everything should be in context, whether it is PE or PEG; on a standalone basis they mean nothing
Synopsis
Conventional wisdom suggests that a PEG below 1 is a bargain, a PEG equal to 1 is fair, and anything above is too rich. Textbooks, broker reports, and online forums all echo the same refrain: Avoid stocks with PEGs of 1.5 or 2, because they are overpriced. But history tells a different story. The best of the wealth creators have spent long stretches trading on PEGs comfortably above 1, often above 2, and yet delivered extraordinary returns. To understand why, one has to look beyond the formula to the essence of what investors are truly paying for: The quality and durability of growth.
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