ManyanalystsusethePEGratiotocomparethepricingof
firms with different expectationsof growth. Thefollowing
table summarizes theP/E ratios,expectedgrowthrates (as
predicted by analysts for the next five years), and the
resulting PEG ratios of semiconductor firms in January 2006.
Taiwan Semiconductor’s ADR, with a PEGratio of 0.32,
lookslikethecheapeststockinthegroup,andIntersil,witha
PEGratioof4.00,comesoutasthemostovervaluedstock.
There does, however, seem to be a pattern with the
higher-growthcompaniesbunchedtogetheratthetopofthe
table with low PEG ratios.The relationshipbetween PEG
ratiosandexpectedgrowthratesdoesnotappeartobelinear,
as is clear when we look at the scatter plot inFigure 8.9.