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Beyond The Zulu Principle: Extraordinary Profits from Growth Shares by Jim Slater

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4. Price-Earnings Growth Factors

The PER of a share is a measure of how much an investor is being asked to pay for future growth and how much (i.e. how many times EPS) other investors have paid in the past. It is far and away the most widely used measure of how cheap or expensive a growth share is despite the fact that it is only a one-dimensional measure. Far more meaningful, to my mind is the relationship between the PER of a company and its expected rate of EPS growth. I call this the price-earnings growth factor – PEG for short. As far as I am aware, the PEG is the first attempt to analyse systematically this important relationship and I am convinced that it is an invaluable investment tool.

This PEG is calculated by dividing the prospective ...

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