not increase proportional to growth, companies with high
growth rates will look cheap on a PEG ratio basis.
ILLUSTRATION 7.1: Comparing P/E Ratios and Growth
Rates Across Firms: Beverage Companies
TheP/EratiosandexpectedgrowthratesinEPSoverthenext
fiveyears,based onconsensusestimatesfrom analysts,for
the firms that are categorized as beverage firms are
summarized in the following table:
IsAndresWinesundervaluedonarelativebasis?Asimple
viewofmultipleswouldleadustoconcludethisbecauseits
P/Eratioof8.96issignificantlylowerthantheaveragefor
the industry.
In making this comparison, we are assuming that Andres
Wines has growth and risk characteristics similar to the
averageforthesector.Onewayofbringinggrowthintothe
comparisonistocomputethePEGratio,whichisreportedin