An Argument for Growth Stocks, from Henrik Andersson
Let's say a high PE stock in an efficient market trades at 1x PEG. Then the share price needs to appreciate at he PE level (20 -> 20%) for the valuation to remain unchanged. This higher drift might be an argument for growth stock investing. Is this an argument usually seen?
Gary Rogan writes:
A simpler version is often seen, simply related to "growth" corresponding to a higher growth in earnings or that the stock in underpriced based on the high growth and not high enough PE. Few people make an argument based on the valuation in the sense of PEG remaining unchanged, probably because there is no rule that it has to remained unchanged due to the volatility of growth rates in growth stocks.