By Ekta Sonecha Desai
Mentioning Peter Lynch to investors is like whispering a secret code to a treasure chest—mysterious, compelling, and full of promise. For investors, Lynch’s strategies, particularly the PEG ratio, hold the same allure, offering a deeper understanding of what makes a stock value for money — or overpriced.
Expensive stocks often steal the spotlight in the investment world, sparking debates about whether their price is justified. While their high valuations can be daunting, they are sometimes backed by strong growth potential. Other times, they are simply overvalued and prone to big declines in stock price.
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The ‘PEG ratio’—short for Price/Earnings (P/E) to Growth ratio—is a valuation metric that goes beyond the surface. Unlike the standalone P/E ratio, which can paint high-growth companies as overvalued, the PEG ratio factors in future growth, offering a clearer picture.
First popularized by Peter Lynch in One Up on Wall Street, this formula has become a cornerstone for analyzing stocks. According to Lynch, a PEG ratio of 1 indicates a fairly valued company, while ratios below 1 suggest potential bargains, and those above 1 may signal overvaluation.
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Here’s the formula: PEG Ratio = (Price/Earnings Ratio) ÷ Annual EPS Growth Rate
For investors, analyzing expensive stocks through the lens of the PEG ratio is like using a telescope to gaze at distant stars—bringing clarity to what might otherwise seem out of reach. With that perspective, let’s explore the three most expensive stocks in India that stand out when evaluated through Peter Lynch’s favorite formula.
1. Sheela Foam
Sheela Foam is a leading player in India’s mattress and foam products industry and a leader in Polyurethane (PU) Foam. It has a nationwide presence in manufacturing PU Foam with a track record, since 1971.
Sheela Foam is the most expensive company according to PEG ratio. Its currently trading at a PEG ratio of 98.4 times.
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