is ist jsut me or does this seem backward attractive, statements, following, regarding, valuation

morebeans

First

Which of the following statements regarding the P/E to growth (PEG) valuation approach is least accurate? The P/E to growth (PEG) valuation approach assumes that:
A) there are no risk differences among stocks.
B) there is a linear relationship between price to earnings (P/E) and growth.
C) stocks with higher PEGs are more attractive than stocks with lower PEGs.

The answer is C, but it seems opposite to me, you wouldn't want to buy a stock with a peg of 6, many people consider pegs of 2 to be getting to be high priced(in general). It appears to me that the higher the peg the more multiples of growth it is, therefore it is getting more and more expensive.

Second, the text is similar, high P/E's are good, but in the real world, we want low (relative) P/Es because it indicates a good buy or a discounted stock (generally)

anyone have comments?

tianxin

Page 491 on the CFA equity book states that "Stocks with lower PEGs are more attractive than stocks with higher PEGs, all else being equal".

So the way I see it, investors should prefer a stock with a lower P/E than a higher P/E (less likelihood of the stock being overvalued). So, for a given quantity of growth, a lower PEG is better than a higher PEG.

ap0258

b/c companies should be priced relative to growth rates, hence why PEG of 1 is best. Less then one suggests the company is growing strong, but this isn't shown in the price, whereas greater then 1 suggests its price to too high relative to growth.

President1988

and since all investors want to pay little to get much, the less you pay per unit of growth the more attractive is the stock --> lower PEG is better than higher PEG cet. par. and that makes C least correct.

At the same time A) is correct, because this explanation for PEG implies that only growth is priced and risk is not considered.

needhelp1700

Least....Thats what it is... I have read this question a dozen times and missed the "least"....i hate this exam...