Piopiou
I’m new to the PEGY ratio. Grateful if you could comment on the following application of the PEGY ratio to CCP.
Firstly, do you agree that the formula for the PEGY ratio is?
PEGY = (Share Price / EPS) / (Earnings Growth Rate + Dividend Yield)?
And that the financial inputs for CCP are:
Share price = $12.20
2015 EPS = $0.83
2016 EPS = $0.98
2016 EPS = $1.10
Giving an average annual earnings growth rate between 2015 – 2017 = 15.2%
2016 dividend = $0.48
2016 dividend yield = 3.9%
Therefore the PEGY ratio = (12.20 / 0.83) / (15.2 + 3.9) = 0.65
I gather the convention is to regard low a PEGY Ratio which is above zero and below 1.0 as being low and that a share with a PEGY ratio in this range is regarded as being "cheap". CCP’s PEGY ratio of 0.65 implies that CCP is currently ‘cheap’. Cheapness can either be because a share has a high earnings growth rate or a high dividend yield or a combination of both. CCP has both.
When a share is ‘cheap’ it follows that there is room for it to appreciate.
For CCP to become expensive, the PEGY ratio would have to rise above zero. There are four circumstances which could cause this to happen:
- The EPS, could fall
- The rate of earnings growth could fall
- The dividend could fall, or
- If none of these things happen, then the SP would need to rise by 50%
Appreciate your insights
K
(20min delay)