I am glad that you mentioned that "the famed investor Peter Lynch used the Peg ratio".
Yes you are wright. Peter Lynch once " wrote in his 1989 book One Up on Wall Street that "The P/E ratio of any company that's fairly priced will equal its growth rate", i.e., a fairly valued company will have its PEG equal to 1."
(see https://en.wikipedia.org/wiki/PEG_ratio).
As to which (trailing or projected) values should be used for PE and G, in the above Wikipedia website it has also explained clearly -
"The P/E ratio used in the calculation may be projected or trailing, and the annual growth rate may be the expected growth rate for the next year or the next five years."
So there is nothing wrong to use a trailing PE in the PEG valuation, especially when ALU didn't supply any quantitative guidance for its 2018 earnings, except saying "Altium’s goal is to achieve $200 million in revenue by 2020".
Now let's have a look at what G value should be used "for the next year or the next five years". I largely agree that it is about 25% pa at present. However, this G has to decline in coming years. Based on ALU's own data, last year (2017)'s revenue was $110.9m and it will become $200m in 2020. So its average revenue growth rate will be (200/110.9)^(1/3)-1=21.7% pa in the 3 years of 2017-2020. And the revenue will further grow to $300m in 2025 (see Homer's post above). Thus the revenue growth rate in the 5 years 0f 2020-2025 will be drastically reduced to (300/200)^(1/5)-1 = 8.4% pa. I reckon the corresponding average EPS growth rate will have to be at least HALVED from present 25%.
Obviously such a miserable G would never be able to maintain the present price with a PE of 70+.
ALU Price at posting:
$20.29 Sentiment: Sell Disclosure: Not Held
