Asian Journal of Research in Banking and Finance
Year : 2014, Volume : 4, Issue : 11
First page : ( 91) Last page : ( 99)
Online ISSN : 2249-7323.
Article DOI : 10.5958/2249-7323.2014.01439.4

Analyzing the Relationship between Common Return on Investment Based on PEG Strategy

Soudani Ahmad

Msc students, Department of Accounting, Science and research Branch, Islamic Azad University, Khouzestan, Iran

Online published on 11 November, 2014.

Abstract

The PEG ratio which is considered by many analysts as the adjusted ratio of P/E is now being used as a strategic approach to equity valuation by the analysts and capital market practitioners. This ratio has been studied in many countries and its efficacy has been proven, however, this ratio is not taken serious by the Iranian analysts and capital market practitioners which might be due to their lack of sufficient knowledge. In this research we compared the PEG ratio with the stock returns of 100 companies and PEG ratio of industries with all of the stock returns of industries in iran stock exchang, first we found that the PEG ratio and stock returns of the companies are not significantly related. However due to deficiency of stock market in Iran and the delayed reflected data, we again tested the past PEG ratio with the return and found that there is a significant relationship between past PEG ratio and returns of stocks however we can use past PEG ratio and returns of stock in our decision. In Hypothesis2, we found that there is a significant relationship between PEG ratio of industries and return of industaries. However we can use its result in our rational decision. The study result also showed that portfolio returns would increase if the stocks with high PEG ratio were removed and only the stocks with low PEG ratio were left. This reflected the efficiency of PEG ratio in generating significantly higher returns than the market.

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Keywords

Intrinsic value, PEG ratio, the rate of company growth.

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