When assessing how expensive or inexpensive a stock is, one common metric used by analysts and investors is the Price Earnings to Growth (PEG) multiple. This metric takes the valuation multiple (P/E) of a given company and divides said multiple by the corresponding compounded annual growth rate (CAGR) of a form, to give investors an idea of how richly valued a company is relative to its historical growth rate, a better valuation tool for high growths companies.
High-flying growth companies in the technology sector, such as Alphabet Inc. (NASDAQ: GOOG) are great examples of stocks which are, in many cases, more richly valued than peers on the basis of pure valuation multiples alone. Right now, at the time of writing, shares of Alphabet are trading at a PEG of a little more than 1, a good indicator that this company is very fairly valued and investors can pick up excellent growth at a great price.
The reasons for the otherwise "cheap-looking" valuation are many, and as most investors know are tied to the expected market turmoil related to the COVID-19 pandemic.
Advertising demand, particularly online, is likely to see significant downside pressure, as corporations slash capital spending and all non-essential spending to hoard cash and stave off impending the doom and gloom, which is expected. For those with a long enough time horizon, looking two to three years down the road, one may be able to envisage a scenario where this market turmoil could be viewed as a great buying opportunity in hindsight, though the whole story has not been written yet.
Invest wisely, my friends.
