It's hard to find quality stocks where the growth rate exceeds the PE. This one is hard to figure with .86 in the last 12 months and I see it just traded at 8.96. So that's a PE of about 10.76 according to my broker's calculation. That's on last 12 months earnings and doesn't look ahead at all. I don't see growth suddenly slowing. This should be trading much higher than where it is now.
And the relationship between growth rate and PE is entirely fuzzy in the first place. As if PE itself weren't a piece of voodoo. PE measures what the market thinks is your debt-discounted sale price now vs. the profits you've made over the past year. What it's supposed to mean is anyone's guess, and the fact that it omits debt makes it a hugely variable piece of misinformation. Growth rate (growth of profits? revenues? assets? market cap?) measures where you think you're going vs. where you are now. In the 80s Peter Lynch invented the PEG, which is even bigger voodoo than PE, because people had stopped feeding his company when he pressed their PE button.
Dump the numerology. It won't tell you what you've been told it will tell you.
Thanks but I'll hold on to the numerology. I believe you have to look at the numbers to determine how expensive the stock is relative to it's growth rate. Growth in EPS, revenue, etc., but I believe you look at EPS first.
You might want to know what you are talking about before you discount/trash it. When someone compares PE to growth rate, such as when the PEG ratio is calculated, it is the growth rate percentage. So it would be a P/E of 10 divided by a growth rate of 10. Your order of magnitude comment just shows what an idiot you are. You are right about ignoring leverage, that is about all that made sense in this post though.