
66 The Financial Times Guide to Corporate Valuation
Let’s say you are considering buying stocks in the growth superstar company
of the last decade – Google. At the time of writing, Google is trading at a P/E
multiple of 47. A quick comparison with the NASDAQ average P/E ratio of
30 could make you conclude that Google could be overvalued in relation
to the market. Introducing the growth rate changes the picture completely
since Google, with its expected earnings growth rate of 33 per cent, has a
PEG ratio of 1.40 compared with the average expected growth rate of the
NASDAQ of 15 per cent, resulting in a PEG ratio of 2. Using the PEG ratio
instead ...