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PE/PEG ratios as determinants of stocks over/under-valuation – a top-down analysis by sector

Thanks for coming over to our site. We have a free program here that offers you the ability to fully diagnose any industry or market that you are curious about. During this article, we are going to run through exactly what top-down stock market analysis is and a few formulas for tracking stocks to see if they are good investments for you. If you have any questions, please reach out to us.

What is Top-Down Stock Market Analysis?

If you are new to investing, this might be a common term that you have heard. It is simple though, top-down stock market analysis is essentially looking at the bigger picture of a stock or industry. Once the stock or industry has been identified, an analyst (or even you utilizing our software) can look into the actual details and balance sheets of the subsets to decide to invest or move on.

Our system pulls all this global economic data for you so you can quickly access everything you need to quickly decide on a stock. We will run through and explain a few ways to do exactly that. The formula we will use to analyze a stock is the Price-to-Earnings Ration and the PEG to assess an overall good investment.

Why Use PE Ratio and PEG to Assess an Investment?

The first thing to discuss is that the price-to-earnings ratio is one of the gold standards for a business evaluation to determine a stock’s value. In addition to showing if a stock is overvalued or undervalued, the PE can also compare the company to the industry benchmark which is why you want to also look at the industry PE. The last thing to know about PE is how to calculate it so when you analyze the below data, you understand how to digest it.

Price-to-Earnings Ratio = Share Price / Earnings Per Share

When you have the PE you will want to compare it to the industry average. If it is over the industry then it is overvalued compared to all but if it is under, then it is undervalued and will be a key aspect to take into consideration for investment. The one issue using just PE is that even if it is calculated using a forward earnings estimate, it does not show whether or not the PE is in correlation with the company’s future growth. That is where PEG is introduced.

Price-to-Earnings to Growth Ratio = PE / EPS Growth (Annual Earnings Per Share Growth)

Stock prices are traditionally based on an investor’s expectations of the future performance of a company, this would represent the equilibrium between the anticipated earnings growth to the market value of a stock. PEG essentially gives an apple-to-apple comparison of any stock in any industry as it shows a whole instead of a times multiplier like the PE Ratio. It is safe to say that if a companies PEG is under 1 then it is undervalued and if it is over 1 then it is overvalued. While there is not a set formula or theory to use to guarantee any earnings, this is one that we utilize internally, and it has helped for our portfolio growth.

Dashboard Overview

The below image is exactly what you will see when you come to our experimental system. You see it on our site when you change the 3-month % to PE Ratio as this is one of the strongest formulas to use for stock evaluation. The main thing to focus on here is the group section for you to select the industry or stock that you are looking to analyze. We are going to start under the Consumer Durables tab then select Automotive Aftermarket for this example for analysis.

Price-to-Earnings Evaluation

Now that we have brock down to the automotive Aftermarket, we are going to look at Copart (CPRT) for this example.

As you can see from the breakdown, Copart has a P/E Ratio of 42.41 but the aftermarket industry is set at 24.96. From the above discussion, this would be an overvalued stock and if we look at the charts on the right, the earnings have decreased over the past 3 quarters. This is a massive overview but it is something that you can utilize our program quickly to see how a company lines up. 

Now that we have seen the P/E Ratio, we will look at the PEG to double-check out quick analysis.

PEG Evaluation

As you can see below, we have now adjusted everything over to the PEG filter. Once we open up this group section, we can see that Copart is showing a 1.14 while the industry is at 1.70. This isn’t to show that Copart is a good investment compared to the automotive aftermarket industry as we mentioned above, it is to compared apples-to-apples. Copart is .14 over the 1 standard so it is again, overvalued but so is the aftermarket industry.

With all of this data being shown, as an analyst/investor, we would try to avoid the aftermarket industry.


By utilizing our system, you can see this data that is traditionally shown as a quick glimpse through other financial sites. We are showing you the data plus the industry along with it and the charts for you to track when it would be a strong time to get into a company than sell out if you are trying to swing trade. This is one of the things that you have to consider while utilizing our systems. Thank you for reading and coming to our site, now we challenge you to utilize your investment tactics and see how our system can help you. 

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PE/PEG ratios as determinants of stocks over/under-valuation – a top-down analysis by sector

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