5 Companies that Score Well in Terms of PEG Ratio

But here’s the uncomfortable truth: a low PE ratio can be a trap dressed up as a treasure. Sometimes, stocks are cheap for a very good reason. And the PE ratio won’t tell you that.

So, what if there were a single number that didn’t just tell you whether a stock was cheap, but whether it was cheap relative to how fast it’s actually growing? A number that separates the genuine bargains from the value traps? 

That’s exactly where the PEG ratio or price to earnings growth ratio comes in. And once you start using it, you may never look at the humble PE ratio the same way again.

Let’s break down what the PEG ratio is and then look at five stocks with attractive PEG ratios in the current market.

What Is PEG Ratio?

The PEG ratio, short for Price to Earnings to Growth, takes the familiar PE ratio one crucial step further by factoring in a company’s expected earnings growth.

The formula for calculating PEG ratio is simple:

PEG Ratio = PE Ratio ÷ Annual EPS Growth Rate

So, if a company has a PE of 20 and is growing earnings at 20% per year, its PEG ratio is 1.

It normalised the valuation against growth. A stock with a high PE of 40 might be more reasonably priced than one with a PE of 15 if growth is accounted for. 

So, what counts as a good PEG ratio? Here’s the general framework:

• PEG below 1.0: Considered undervalued. The stock’s price hasn’t fully caught up to its growth potential.
• PEG around 1.0: Considered fairly valued. The price and growth are roughly in balance – you’re paying a fair price for the growth you’re getting.
• PEG above 1.0 (up to 2.0) – Starting to look expensive. You may be overpaying relative to growth, though strong companies can sometimes justify it.
• PEG above 2.0 – Generally considered overvalued. The market has priced in a lot of optimism, leaving little margin for error.

One of the world’s greatest investors, Peter Lynch, typically invested in stocks with a PEG less than 1.2. He preferred a PEG less than 1. According to him a PEG less than 1 was ideal because he was paying only for an increase in the company’s growth rate and not the current growth rate.

With this context out of the way, let’s look at 5 stocks which have attractive PEG ratios right now.

#1 KNR Constructions

At the top of the list we have KNR Constructions.

KNR provides EPC services, primarily for the road and highways segment. It has executed infrastructure projects independently and through joint ventures. This has helped it in bagging orders of larger value, in diverse regions.

Majority of its clients are government agencies, including the central government, NHAI, and the public works departments of state governments.

Over the past few years, KNR has diversified into many areas, executed orders related to irrigation and construction of flyovers and bridges.

It has a current portfolio of 8 HAM projects which include 7 projects awarded by NHAI and one by Karnataka State Highways Improvement Project. It also has a BOT portfolio of two annuity projects that have been operational in joint ventures for over 15 years.

Its PEG ratio is low at 0.15.

The management belies in future growth, backed by a robust order book. The outlook of the water treatment segment which it specializes in is bright.

The stock currently trades at a PE of 6.8 while its debt to equity is 0.49.

Coming to its financials, KNR’s sales and net profit have grown at a compounded annual growth rate (CAGR) of 14% and 31%, respectively over the past 5 years.

Its return on equity (ROE) and return on capital employed (ROCE) have averaged 19% and 23%, respectively.

Going forward, the company is expected to maintain this growth rate, given its robust financial risk profile and established market position, supported by a strong order book and project execution capabilities.

The management expects to add incremental orders worth Rs 100 billion (bn) over the next few quarters, which provides healthy revenue visibility.

While its margins from core operations have moderated on account of lower execution and increased competition, the long-term outlook remains the same.

KNR – 1 Year Share Price

Source: NSE

#2 GOCL Corporation

Second on the list is GOCL Corporation.

GOCL, formerly Gulf Oil Corporation, was incorporated in 1961 as Indian Detonators in Hyderabad. 

The company is a part of the Hinduja Group which is one of the largest diversified groups in India spanning various sectors of the economy. 

GOCL is a key player in businesses in energetics and realty. It had 2 wholly owned subsidiaries – IDL Explosives and HGHL Holdings in UK. Last year, it disinvested IDL Explosives to Apollo Defence Industries.

Over the years, the company has forayed into various segments like lubricants, mining, real estate, wind energy, food chemicals, pharma, etc. to diversify its operations.

The stock currently has a PEG ratio of 0.32. 

The company trades at a PE multiple of 7.7 while its debt to equity is negligible at 0.1.

Coming to its financials, its sales and net profit have grown at a CAGR of 2% and 13% respectively over the past 5 years.

Its ROE and ROCE have averaged 9% and 10% respectively.

Going forward, the company is looking at opportunities for investments that will be value-enhancing in the international markets.

GOCL Corp – 1 Year Share Price

Source: NSE

#3 PTC India

Third on the list is PTC India.

PTC India was incorporated in 1999 to support implementation of the mega power policy of the government. 

NHPC, NTPC, Power Finance Corporation, and Power Grid Corporation of India are its promoters. 

It has a Category I license issued by the Central Electricity Regulatory Commission under the Electricity Act, 2003, which permits unlimited trading in power. 

The company is the largest player in the power trading segment with a market share of 32%.

It facilitates cross-border power trade with neighbouring countries like Bhutan, Nepal, and Bangladesh, while also serving domestic state utilities, commercial, and industrial consumers.

The stock trades at a PEG of 0.8.

Its PE stands at 9.2 while the debt to equity is currently at 0.3.

Coming to PTC India’s financials, its sales and net profit have grown at a CAGR of 2% and 16% respectively over the past 5 years.

Its ROE and ROCE have averaged 11% and 14% during the same period.

The company also has a strong track record of dividend payouts due to its asset-light business model.

Looking ahead, PTC India’s management expects overall power demand to remain firm.

PTC is expanding its scope to include proprietary trading in power and other commodity derivatives on exchanges such as the Multi-Commodity Exchange and the National Stock Exchange. 

This allows PTC to optimise commercial opportunities and manage market risks using cash-settled financial instruments.

Furthermore, PTC is venturing into future-focused energy technologies like Green Hydrogen and Battery Energy Storage Systems. The company is investing Rs 12 bn into these strategic investments.

PTC India – 1 Year Share Price

Source: NSE

#4 Cigniti Tech

Fourth on the list is Cigniti Tech.

Cigniti Technologies, a Coforge company, provides AI-driven, IP-led digital assurance and digital engineering services.

The company helps enterprises accelerate digital transformation through software quality engineering, software testing, automation, and consulting services.

Their specialised services include AI and machine learning engineering, blockchain development, data engineering, cloud migration assurance, 5G assurance, and robotic process automation.

At present, the stock trades at a PEG of 0.3.

Its PE ratio stands at 11.4 while its debt to equity is almost nil.

Coming to its financials, the company’s sales and net profit have grown at a CAGR of 18% and 11% respectively over the past 5 years.

Its ROE and ROCE have averaged 24% and 33% respectively during the same period.

Moving ahead, Coforge is amalgamating with Cigniti Technologies. This merger aims to create synergised capabilities in AI-led assurance and digital engineering IT solutions, expanding their presence particularly in the US market.

The merged entity will bring in an annualised US$ 100 million in retail and close to US$ 50 million each in hi-Tech and healthcare, giving Coforge a significant head-start in verticals where the management has declared intent to expand.

Cigniti Tech – 1 Year Share Price

Source: NSE

#5 Rashi Peripherals

Last on the list is Rashi Peripherals.

Rashi Peripherals is among the leading national distribution partners for global technology brands in India for Internet and Communications Technology related products.

It has one of the largest distribution networks in India and has been present in the industry for over three decades.

The company offers end-to-end services such as pre-sale activities, solutions design, technical support, marketing services, credit solutions and warranty management services.

As a national ICT distributor, Rashi Peripherals is the connecting link between global brands like Nvidia, Intel, ASUS, HP and the Indian market.

The company’s clients include e-commerce firms like Amazon and Flipkart, through which these products find their way to Indian markets. It also has other prominent clients.

The company has two subsidiaries: Z-Net Technologies which is engaged in the business of cloud services offering cloud infrastructure and managed services, and Rashi Peripherals Pte., which is engaged in distribution of ICT products, based in Singapore.

The stock is trading at a PEG of 0.4.

Its PE ratio is 12.5 while the debt to equity stands comfortably low at 0.49.

Coming to its financials, over the past 5 years, the company’s sales and net profit have grown at a CAGR of 29% and 39%, respectively.

The return ratios have been commendable too, with 5-year average ROE and ROCE at 21% and 33% respectively.

Going forward, the company plans to expand distribution networks, especially targeting Tier-II and Tier-III cities, supported by digital transformation and new enterprise tech spending.

Rashi Peripherals – 1 Year Share Price

Source: NSE

Conclusion

The PEG ratio won’t make you a millionaire and it certainly isn’t a crystal ball. 

But what it does offer is a smarter lens for seeing what’s really going on beneath a stock’s price tag. 

It pushes you past the surface-level allure of a cheap PE and asks the better question – cheap compared to what?

Treat these 5 names as a starting point for your own research, and pair their PEG ratio with balance sheet, their competitive moat, etc.

While stocks with appealing PEG ratios are frequently associated with the promise of substantial growth, it’s essential to remember that PEG ratios represent just one facet in the evaluation of a stock.

Before jumping into such stocks, investors should also examine additional factors, including the company’s financial stability, its corporate governance, and the competitive dynamics within its industry.

Happy investing.

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