THE PEG RATIO EDITION
24 MAY 2012
Is O’Reilly Automotive Currently Priced at a Premium?
StockCentral subscriber Lynn Brown takes an updated look at O’Reilly Automotive and wonders about its current valuation. “O'Reilly has taken over auto parts store in my town (California), so I thought good time to check this out. I have Value Line reports and information on ORLY back to 2002. What I find most interesting is how it has continually been ‘overvalued’ and then the stock price within one year is right where people expected in five years. It never seems to stop!”
Lynn continues: “I am wondering why not buy it, even if I have in a hold and at least $10 overpriced (the Investor Advisory Service has it at least $23 overvalued). Debt is increasing while they have lots of cash. I still need to research why they are taking out debt and for what when they could use all the cash. Otherwise, the fundamentals on this company look really good.”
What’s your take on O’Reilly? Chime in on the StockCentral message boards.
Using the PEG Ratio to Value Stocks
One of the ways that our Investor Advisory Service analysts and investors evaluate the price of a stock is to compare its current price/earnings ratio to the company's projected earnings per share growth rate. This comparison is known as the PEG ratio.
The PEG ratio is calculated by dividing the P/E ratio by the EPS growth rate.
In general, a PEG ratio of 1.0 or less is considered extremely favorable.
Read More ….
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