The price/earnings-to-growth(PEG) ratio is a valuation metric that describes the relationship between the price of a stock, the earnings generated per share, and the growth rate.
PEG Ratio is calculated by dividing the PE ratio of a stock by its percentage EPS growth rate.
A PEG ratio of “1” represents a perfect correlation between the company’s market value and its projected earnings growth, in the same way, a PEG ratio higher than “1” suggests a stock is overvalued.
As a thumb rule Company’s PEG ratio lower than “1” is considered better, which signifies the stock is relatively undervalued.
Here are three companies with a PEG ratio and D/E ratio of less than one.
Dr. Reddys Laboratories Ltd:
India’s most prominent leading multinational pharmaceutical company Dr. Reddy’s Laboratories is engaged in the business of Active Pharmaceutical Ingredients, Custom Pharmaceutical Services, and generics.
The company belongs to the large-cap category with a market capitalization of Rs 81,336 crores. Shares were trading at Rs 4,890.85 a share on June 16, up 1.82 percent from the previous close price.
The company’s price-to-earnings ratio is 17.35, which is lower than the industry P/E of 25.49, signifying that the stock is trading at a lower price, and it has an EPS of 270.84.
Revenue climbed by 15% year on year, rising from Rs 21,545 crores in FY 21-22 to Rs 24,669 crores in FY 22-23. Net profit has increased by 111%, from Rs 2,112 crores to Rs 4,470 crores.
The company’s PEG ratio is 0.47, and its debt-to-equity ratio is 0.06.
The profitability ratio has increased over time, for FY23, ROE is 19.35 percent and ROCE is 26 percent, with a net profit margin of 18 percent and operating margin of 25 percent.
Hindalco Industries Ltd:
Hindalco Industries was Incorporated in 1958, Company is an industry leader in the production of aluminum and copper metals. It is also engaged in the manufacturing of aluminium sheets, extrusion, and light gauge products.
The company belongs to the large-cap category with a market capitalization of Rs 96,415 crores. Shares were trading at Rs 428.75 a share on June 16, up 1.32 percent from the previous close price.
The company has a price-to-earnings ratio of 9.37, which is lower than the industry P/E of 11.86, and an EPS of 45.36, which makes it an undervalued stock.
Revenue climbed by 14 percent year on year, rising from Rs 1,95,059 crores in FY 21-22 to Rs 2,23,202 crores in FY 22-23. Net profit fell by 29%, from Rs 14,195 crores to Rs 10,088 crores.
The company’s PEG ratio is 0.60, while its debt-to-equity ratio is 0.62.
The profitability ratio is increasing with time, for FY23, ROE is 10.65 percent and ROCE is 10.24 percent.
SRF Ltd:
Established in 1970, SRF Limited is a chemical-based multi-business that is engaged in the manufacturing of industrial and specialty intermediates.
The company belongs to the large-cap category with a market capitalization of Rs 70,934 crores. Shares were trading at Rs 2,392.50 a share on June 16, up 1.09 percent from the previous close price.
The company has a price-to-earnings ratio of 32.22, which is higher than the industry P/E of 15.26, and an EPS of 72.96, which makes it an overvalued stock.
Revenue climbed by 19 percent year on year, rising from Rs 12,433 crores in FY 21-22 to Rs14,870 crores in FY 22-23. Net profit increased by 14.5%, from Rs 1,888 crores to Rs 2,162 crores.
The company’s PEG ratio is 0.90 while its debt-to-equity ratio is 0.43.
The profitability ratio continues to rise with time; for FY23, the ROE is 20.93% and the ROCE is 21.88%. Similarly, the net profit margin has improved significantly to 14.54 percent, with an operating margin ratio of 20.36.
Written by Omkar C
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