23 Stocks to Watch with Strong Growth and Low PEG Ratios

Maximizing returns with value-driven growth investments

The Price Earnings to Growth (PEG) ratio is a financial metric used to assess a stock's valuation relative to its expected growth rate. It builds on the PE ratio by factoring in the company's projected growth, providing a more nuanced view of whether a stock is overvalued or undervalued. In this article, we will introduce the PEG ratio, explain how it is calculated, and highlight 23 stocks with EPS growth above 15% and a PEG below 1, ideal for investors seeking value-driven growth opportunities.

Of course, as always, a thorough analysis is essential to determine whether the stock is truly a good investment.

Key Components of the PEG Ratio

1. PE Ratio. This is calculated by dividing the current share price by the earnings per share (EPS). It indicates how much investors are willing to pay for a dollar of earnings. Even if it is flawed, it is the most common valuation metric.

2. Earnings Growth Rate. This represents the expected annual growth rate of a company's earnings over a specified period, typically the next 3 to 5 years. This growth rate is often derived from analysts' forecasts. In this article, for my picks, I will use the 2023 - 2026 EPS CAGR.

How to calculate PEG and how to analyze it

The formula for calculating the PEG ratio is:

PEG Ratio = PE / Earnings Growth Rate

• A PEG ratio less than 1 suggests that the stock may be undervalued relative to its growth rate, potentially indicating a buying opportunity

• A PEG ratio greater than 1 may suggest that the stock is overvalued, as investors are paying more for each unit of growth

Advantages and limitations

The PEG ratio provides a more comprehensive view of valuation by incorporating growth expectations, making it particularly useful for evaluating growth stocks. It helps investors compare companies within the same industry, as different sectors may have varying growth rates.

The accuracy of the PEG ratio depends on the reliability of the earnings growth estimates, which can be influenced by market conditions and company performance. It may not be suitable for companies with inconsistent earnings, extreme growth or negative growth rates.

The stock selection

The stocks in this selection share these key characteristics:

• EPS CAGR of over 15% from 2023 to 2026

• Revenue CAGR exceeding 8% from 2023 to 2026

• PEG ratio below 1

Without further ado, let’s dive in!

1. Genmab

Genmab is a biotechnology company that creates differentiated antibody therapeutics for the treatment of cancer.

Country: Denmark

Sector: Healthcare

Market cap: $14.6B

Revenue CAGR: 20.2%

EPS CAGR: 20.5%

PE: 19.3x

PEG: 0.94x

2. Nu Holdings

Nu Holdings is a fintech company offering digital banking and payment solutions primarily in Latin America.

Country: Brazil

Sector: Financials

Market cap: $71.5B

Revenue CAGR: 34.6%

EPS CAGR: 55.6%

PE: 37.2x

PEG: 0.67x

3. GQG

GQG Partners is an investment management firm that focuses on active equity and fixed-income strategies across global markets.

Country: Autralia

Sector: Financials

Market cap: $5.4B

Revenue CAGR: 24.2%

EPS CAGR: 23.3%

PE: 9.8x

PEG: 0.42x

4. Napco

Napco develops advanced security products, including intrusion detection, fire alarm systems, and access control solutions.

Country: US

Sector: Telecommunication

Market cap: $1.4B

Revenue CAGR: 12.6%

EPS CAGR: 40.6%

PE: 24.7x

PEG: 0.61x

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