If you read the previous article, you learned that you should not value any stock by any one single metric. Instead, P/E, P/S, and E/S ratios are used in combination with other factors, since earnings and sales can be modified by certain circumstances. Other figures, like Book Value, Price/Book, and PEG ratio, or Price, Earnings Growth, are treated the same as the previous metrics. None of these figures should be leaned upon solely to help determine whether to purchase or sell a stock.

The Book Value, Price/Book, and PEG are choices that you can add to your Yahoo! Watch Portfolio, so I'll cover these items in this article. Get out your pads and pencils so that you can begin to compare how these metrics compare to the ones I shared with you last week:

Book Value: This is also the asset value of a company, or at least what the accountant for that company says it's worth. This has nothing to do with what you think the stock might be worth (that would be the Price/Book ratio shown below), because the company might not be totally transparent about debts and assets. You can calculate the Book Value by adding retained profits (the profits left in each business year minus deductions for payments, including dividends) to the initial share capital. This is pure arithmetic that often is distorted by inflation. If you add this valuation to your watch portfolio, Yahoo! will calculate this figure for you. The figure you see will be the Book Value per share.

Many analysts consider the Book Value a useless way to value a business, but it is a measurement that's needed to determine the Price/Book.

Price/Book: Also known as P/B, this measurement looks at the value the market places on the book value of the company. You calculate the P/B by dividing the Book Value by the current price per share, or simply let Yahoo! calculate this figure for you. Like the P/E, the lower the P/B the better the value in most instances, but stocks are known to defy this valuation depending upon how the market determines a company's future growth. You can learn more about this growth through the PEG.

PEG: Also known as Price, Earnings, and Growth, the PEG relies heavily upon the P/E, or Price per Earnings ratio, for its calculation. This is almost like adding insult to injury, as the PEG is a valuable metric to determine the growth rate of any given company, but the P/E seems to be one of the most difficult valuations to understand. As with other valuations, Yahoo! will determine the PEG for you, but it's a good idea to know how the PEG works so that you can use it when you screen for your investments.

As I mentioned in the previous article, you can determine the P/E by dividing the current price of a stock per share by the Earnings Per Share (EPS). If you come up with a low P/E, you might have discovered an undervalued stock. To shore this opinion, some investors consider a company that has a high P/E as overvalued, and these investors might be correct. A high P/E might be a signal that traders have pushed a stock's price beyond the boundaries of any near-term growth.

On the other hand, a high P/E might also represent a vote of confidence among traders that the company has strong future growth prospects.

You can calculate a company's PEG when you divide the P/E by the projected growth in earnings. For example, a stock that maintains a 20 P/E and a projected growth rate of 5% for the next year would have a PEG of 4 (20/5 = 4). That "4" means that the PEG is somewhat high (many investors look for a PEG below 2), but this result is - like any other metric - simply a partner in a relationship with some other metric or circumstance. In this case, the lower the number, supposedly the less you pay for each unit of future earnings growth. In other words, a stock that maintains a high P/E but that also shows a very high future earnings growth (determined by analysts) might be a good value.

If you want to find the future earnings growth projection for any given company, simply click on the ticker symbol in your Yahoo! watch portfolio and you'll see a new page that shows all sorts of information for that stock. Scroll down the page until you see "Analyst Coverage" in the left menu. Click on the "Analyst Estimates" link in that menu. The very top table in the page that pops up contains analysts' estimates for that company for the current and next quarter, and for the current and next year.

If you discover that your company has a negative growth prospect for the upcoming year, you might be taking a huge risk. On the other hand, analysts have been known to be wrong (yep - when you hear that a company has "beat the estimates" on quarterly earnings, that means that analysts underestimated the growth potential for that company). Additionally, the earnings potential is often mitigated by growth debts for a new company. So, you can see that earnings estimates are just estimates.

On the positive side, the PEG ratio can offer a view of what the market expects from that company, and that's valuable information to have in your back pocket (and in your watch portfolio). But, if you decide to invest in a behemoth corporation that isn't expected to grow tremendously over the upcoming years, then you don't need to concern yourself with the PEG. What you want to know is how much that company pays in dividends. You'll hear more about dividends and yields next week?

Until Then,
Linda Goin