How to Find Undervalued Stocks
Master proven strategies for identifying undervalued growth stocks using PEG, PEGY, and other essential valuation metrics.
Understanding PEG Ratio for Value Investing
The PEG ratio is one of the most powerful tools for finding undervalued growth stocks. Unlike the P/E ratio, which only considers current earnings, PEG incorporates future growth expectations.
Undervalued Example
A stock with P/E of 15 and 20% growth rate has PEG = 0.75, suggesting it's undervalued relative to its growth potential.
Step-by-Step Screening Process
Screen for PEG < 1.0
Start with stocks that have PEG ratios below 1.0, indicating potential undervaluation.
Verify Growth Sustainability
Ensure the projected growth rates are realistic and supported by fundamentals.
Check Financial Health
Analyze debt levels, cash flow, and other financial stability indicators.
Key Screening Criteria
Primary Filters
- PEG Ratio < 1.0
- Growth Rate > 10%
- P/E Ratio < 25
- Market Cap > $1B
Quality Checks
- ROE > 15%
- Debt-to-Equity < 0.5
- Profit Margin > 10%
- Revenue Growth Consistency
Common Pitfalls to Avoid
- • Don't rely solely on PEG - verify with other metrics
- • Avoid cyclical stocks at peak earnings
- • Be cautious of unsustainable growth projections
- • Consider industry-specific factors
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