Definition
PEG-Flow extends the PEG concept by also considering the relationship between earnings and cash flow. It penalizes companies where earnings growth is not backed by cash flow growth, providing a more holistic measure of growth-adjusted value. This helps avoid value traps where earnings growth is manufactured through accounting rather than genuine business expansion.
functions Formula
PEG-Flow = PEG Ratio × (EPS / Cash Flow Per Share)
lightbulb Example
PEG = 1.2, EPS = $3.00, Cash Flow Per Share = $4.00. PEG-Flow = 1.2 × ($3.00/$4.00) = 0.90. The cash-adjusted ratio shows better value than PEG alone suggests.
verified_user Key Points
- Combines growth and cash flow quality assessment
- Below 1.0 suggests undervaluation with quality earnings
- Penalizes low cash flow conversion
- More robust than PEG alone