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Price Earning Growth Ratio as an Effective Tool in selection of Stocks for Investment – Evidence from Midcap IT Stocks Listed in NSE India

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  • Dr. P. A. Mary Auxilia

    (Assistant Professor, Department of Management Studies, Rajalakshmi Engineering College, Chennai, India)

Abstract

Investing in stocks is considered very risky if careful analysis of the company’s financial data is not done. Company’s credit worthiness and performance can be analyzed by examining the profit and loss account, balance sheet and cash flow statement. But an easiest tool available to determine the best stocks for investment is PEG (Price earnings to growth) ratio. In this context the research is done to find whether PEG ratio is an effective tool in selecting stocks for investment. Mid cap IT stocks listed in NSE India are selected for the study and PEG ratio is calculated before investment based on EPS CAGR and PE ratio. The performance of the stocks was tracked for five years and the data has been analyzed. The percentage return on investment is compared with market return to determine the efficiency of investment. The study proves that PEG ratio is an effective tool for investment as stocks with PEG less than 1 have given remarkably higher returns compared to the market return. Retail investors can use PEG ratio than PE ratio to identify stocks for investment with higher returns.

Suggested Citation

  • Dr. P. A. Mary Auxilia, 2019. "Price Earning Growth Ratio as an Effective Tool in selection of Stocks for Investment – Evidence from Midcap IT Stocks Listed in NSE India," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 3(1), pages 81-83, January.
    • Handle: RePEc:bcp:journl:v:3:y:2019:i:1:p:81-83
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