When Is The PEG Ratio Superior To The P/E Ratio? Part 2

Celgene Corporation (NASDAQ:CELG)

Celgene represents a second example of how the PEG ratio, just as it is with all ratios, should be thought of and recognized as a dynamic calculation.  Just as I did with Express Scripts above, notice how the PEG changes and adjusts as a valuation reference when different timeframes are drawn.

The long-term graph on Celgene Corporation (NASDAQ:CELG) would present the illusion that the stock had become significantly undervalued since the Great Recession based on its long-term historical earnings growth rate of 52% per annum.

However, when we shorten the timeframe, we discover that earnings growth since the Great Recession is almost half as fast as it was in the long-term graph.  When looked at from this perspective, valuation based on earnings growth of 27.7% per annum makes more sense.

When looking to the future as the PEG ratio is most commonly used, the earnings growth rate utilized to calculate a forward PEG ratio has been reduced to 21.89%.  Using this number, the PEG ratio for Celgene Corporation (NASDAQ:CELG) would be considered attractive with a PEG ratio of .84 (less than one).

Although analyst estimates for this company have been reasonably accurate historically, they have been wrong approximately 21% of the time.