Understanding how to derive PEG and establish Target Price?

[stevenmac2]

For the sake of understanding how to calculate PEG, it seems that I find variations to how it is calculated. I find one using variables of Annual Earnings while another used EPS and Projected Growth Rates from Current and Next Year. To remove the confusion and to utilize one approach, can someone walk me through an example you use by using a public source like Yahoo Finance?

Here is an approach I am trying to use. Please tell me if I am calculating this correctly or not. Using Yahoo Finance.

Symbol: CMG
Current Price (ending 10/30): 210.21

CMG Analyst Estimates | Chipotle Mexican Grill, Inc. Co Stock - Yahoo! Finance
(I am using the Avg Estimate from the Earnings Est section)

2010 Annual Earnings (Current Year Dec 10): 5.43
2011 Annual Earnings (Next Year Dec 11): 6.49

Projected Growth (1 Year): (6.49-5.43)/5.43 = 19.52%
--> Would I use these variables to determine growth?
--> Looking at the Growth Est section for Next Year, Yahoo shows in their data that it is 19.50%?

Current P/E: Price(210.21)/2010 AE(5.43) = 38.71?
Yahoo shows on the summary that P/E is 40.69 Where or why is their a difference coming in?

PEG : Price(210.21)/2010 AE(5.43)/Project Growth(19.52%)/100 = 1.98??
Yahoo shows 1.88 in the Growth Est Table

So with a 1.88 value, I found some information that says 1.25-2.0 on a PEG is "Avoid" decision. On Oct 6, Deutche Bank downgraded from Buy to Hold.

In order to then derive a Target Price, would I just take the expected Projected Growth of 19.52% and add it to current price?

210.21 * 0.1952 = 41.03
210.21 + 41.03 = 251.24 TARGET PRICE?

If I don't have this correct, can someone work out a full example so I can get a better grasp of this? or if there is an alternative method using the same data source from Yahoo to see if we close on the same numbers?

Thanks for any assistance.

 

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[max momo]

Yes, you have it right. Just b.c. the yahoo #s don’t exactly match, so what? Yahoo gets it’s data feed from more than one source. One feed will provide one # and another source feed will have a different one.

Think how many different data points Yahoo has every day? Even if they are only wrong 2% of the time, that is a VERY large number of bad datum points.

PEG is a great metric for retail consumables, not so much for other industries (such as mining; other aggregate, etc).

I'd give it a so-so indicator for retail restaurant CHAINS.

In retail chain restaurant sales, there is even a better forward indicator IMO – PES Price per Earnings per Sale. Also like Price per Sales and Revenue per Sales.

Nothing happens until a sale is made. Retail restaurants are so flash in the pan (about a three year sweet cycle) that you need to know if the sales continue to grow. If not, WATCH OUT. Remember Boston Markets? Yeah, they were REALLY hot for three years. Now Bankrupt. Black Angus Steak House? Same thing. On and on and on.

Look at the 10 year sales curve for those restaurants and add Applebees, PFChanges, Round Robin, etc.

Now overlay on the Chipolte sales and growth curves...

 

[stevenmac2]

Did I choose the correct Target Price? Since the growth is a 1 year statement, should I have backed up to add the 19% to the Jan 1 price or is that a statement that says starting right now from this current price point, there is roughly 19% more growth potentially left?

Thanks!

Yes, you have it right. Just b.c. the yahoo #s don’t exactly match, so what? Yahoo gets it’s data feed from more than one source. One feed will provide one # and another source feed will have a different one.

Think how many different data points Yahoo has every day? Even if they are only wrong 2% of the time, that is a VERY large number of bad datum points.

PEG is a great metric for retail consumables, not so much for other industries (such as mining; other aggregate, etc).

I'd give it a so-so indicator for retail restaurant CHAINS.

In retail chain restaurant sales, there is even a better forward indicator IMO – PES Price per Earnings per Sale. Also like Price per Sales and Revenue per Sales.

Nothing happens until a sale is made. Retail restaurants are so flash in the pan (about a three year sweet cycle) that you need to know if the sales continue to grow. If not, WATCH OUT. Remember Boston Markets? Yeah, they were REALLY hot for three years. Now Bankrupt. Black Angus Steak House? Same thing. On and on and on.

Look at the 10 year sales curve for those restaurants and add Applebees, PFChanges, Round Robin, etc.

Now overlay on the Chipolte sales and growth curves...

 

[Rickson9]

Speaking for myself I wouldn't use projected earnings (or projected anything for that matter).

Good luck and best regards!

 

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