Growth, and what is already priced in

0 of 28 lessons checked

Key idea: A great company is not automatically a good investment. What matters is whether its growth is already in the price.

Everyone can see that some companies are growing fast. Because everyone can see it, that growth is usually reflected in the share price already.

Think of two companies. One grows profit 25% a year and trades at 60 times earnings. The other grows 5% a year and trades at 9 times. The fast grower has to keep delivering for many years just to justify its price; any slowdown can hit the shares hard. The slow grower only has to avoid shrinking.

The PEG ratio, P/E divided by the growth rate, is a rough way to compare them. A PEG near 1 means you pay about one turn of P/E per point of growth. It is crude: it ignores how long growth lasts and how certain it is.

The useful question is never "is this a great company?" It is "what does the price assume, and how likely is that?", which is the reverse DCF from Day 11.

Quick check

A stock has a P/E of 30 and earnings growth of 15% a year. What is its PEG ratio?

See what the market is pricing in →

Get the next lesson in your inbox tomorrow

Educational content only, not investment advice. Examples use made-up or historical figures.

Educational Use Only — Not Financial Advice

All content, analysis, valuations, options strategies, AI-generated commentary, screener results, and other information provided by Equity Rank is for informational and educational purposes only. Nothing on this platform constitutes financial advice, investment advice, trading advice, or any other type of advice. Equity Rank is not a registered investment adviser, broker-dealer, or financial planner under any applicable law or regulation.

Valuation models, margin of safety percentages, fair value estimates, options strategy outputs, and AI analysis are algorithmic outputs based on publicly available data and do not represent personalized investment recommendations. All financial models contain assumptions that may be incorrect. Past performance of any security is not indicative of future results. You may lose money on any investment.

Every fair value figure on Equity Rank is our model’s opinion of a company’s intrinsic worth under stated assumptions — it is not a prediction, forecast, or price target for where the security will actually trade. Fair value estimates describe what the model considers a business to be worth today, not where its market price is headed. Actual market prices are set by supply and demand and by factors no model can fully capture, and may differ materially and indefinitely from any fair value shown here.

Always conduct your own independent due diligence. Consult a licensed financial advisor, tax professional, or attorney before making any investment or financial decision. By using Equity Rank, you acknowledge that you understand and accept these limitations. Portfolio model outputs are mathematical results of quantitative algorithms and do not represent investment recommendations.