Trailing price/earnings to growth (PEG): Vicom, Riverstone, SuperGroup, ISOteam, Colex, Nera Tel & Raffles Medical

 

The idea of PEG is popularized by Peter Lynch, who 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.

Of course one should not just look at PEG to gauge the value or growth of the company, other factors such as debt to equity, EV/Ebitda, cash flow from operations, management performance, dividend yield, industry sector, size of company etc… should also be considered. However, it does offer a quick glimpse on the potential of the company.

I am curious about the PEG of some of these companies which I feel are relatively high growth and value (and I have previously written about them – read here, here, here, here, here & here ):

1. Vicom
2. Riverstone
3. Super Group
4. ISOteam
5. Colex
6. Neratel
7. Raffles Medical

Typically they all have low (or zero) debt on their balance sheet. Market Cap relatively small (most around or below $500mil): Vicom ($564.5mil), Riverstone ($426.9mil), Super Group ($1,238mil), ISOteam ($77.7mil), Colex ($37.8mil), Neratel ($282.3mil) & Raffles Medical ($2,241mil).

P/E ratio is easy enough to obtain.

Growth rate: As some of these companies are not extensively covered by analysts, it is hard obtain the 5 years forecast of the earning growth (and of course can’t get from Yahoo finance), hence I am going to calculate the trailing PEG (which uses the previous 5 years growth rate). Also I do not have the ‘luxury’ of talking to company executives, investment managers, industry experts and analysts around the clock – to gauge their future growth.

I will be adding dividend yield to the Growth rate (read here).

(Obtained the P/E ratio from ft.com, EPS growth rate from ft.com, Dividend yield from UOB KH)

 Vicom:

• P/E: 19.05, 5 years EPS growth rate: 11.61, Dividend yield: 2.645
• Trailing PEG: 19.05/(11.61+2.6) = 1.34

Riverstone:

• P/E: 17.67, 5 years EPS growth rate: 15.25, Dividend yield: 2.335
• Trailing PEG: 17.67/(15.25+2.335) = 1.00

Super Group:

• P/E: 20.77, 5 years EPS growth rate: 31.05, Dividend yield: 4.054
• Trailing PEG: 20.77/(31.05+4.054) = 0.59

ISOteam:

• P/E: 11.34, 5 years EPS growth rate: 20 (estimated, not from ft.com), Dividend yield: 1.724
• Trailing PEG: 11.34/(20+1.724) = 0.52

Colex:

• P/E: 9.60, 5 years EPS growth rate: 24.66, Dividend yield: 1.754
• Trailing PEG: 11.34/(20+1.724) = 0.36

Neratel:

• P/E: 17.92, 5 years EPS growth rate: 18.21, Dividend yield: 7.692
• Trailing PEG: 17.92/(18.21+7.692) = 0.69

Of course one must question if Nera can maintain the dividend yield going forward. (read here)

Raffles Medical:

• P/E: 25.28, 5 years EPS growth rate: 20.41, Dividend yield: 1.385
• Trailing PEG: 25.28/(20.41+1.385) = 1.16

 

So there you have it. Super Group, ISOteam, Colex and Neratel made the ‘grade’. Colex being the lowest. (basically, the lower the PEG, the better, below 1 means undervalued)

 

If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.             Peter Lynch