PEG based valuation
I'm looking at a sell-side report where the analyst hasn't shown his work, and my boss won't explain because he thinks PEG ratios are meaningless. Can someone just walk me through the logic here?
We arrive at our price target of $100 based on a 2018 target P/E multiple of 25x (based on global peers' average PEG of 1.1x, adjusted for the company's EPS growth).
So what's actually going on here. Let's say this company has a PEG of 1.5x. S/he sees the peer group trading at 18x P/E and therefore the fair multiple for this company is 18 times (1.5 divided by 1.1)?
(For PEG I'm using LTM P/E and 3Y forward EPS CAGR.)
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