China Wood, Inc (fka CNWD)

[HOSS]

PEG Estimates ...I like numbers, especially the PEG when dealing with stocks on higher exchanges, so LAY OFF!!

http://en.wikipedia.org/wiki/PEG_ratio

The PEG ratio (Price/Earnings To Growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth.

In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates[1].

The PEG ratio is considered to be a convenient approximation. It was popularized by Peter Lynch, who wrote in "One Up on Wall Street" that "The P/E ratio of any company that's fairly priced will equal its growth rate", i.e. a fairly valued company will have its PEG equal to 1.

PEG as an indicator

PEG is a widely employed indicator of a stock's possible true value. Similar to PE ratios, a lower PEG means that the stock is undervalued more. It is favoured by many over the price/earnings ratio because it also accounts for growth. If a company is growing at 30% a year, and has a P/E of 30, it would have a PEG of 1.

The PEG ratio of 1 is sometimes said to represent a fair trade-off between the values of cost and the values of growth, indicating that a stock is reasonably valued given the expected growth. A crude analysis suggests that companies with PEG values between 0 to 1 may provide higher returns[2].

The PEG ratio is commonly used and provided by various sources of financial and stock information. The PEG ratio, despite its wide use, is only a rule of thumb and has no accepted underlying mathematical basis. Its specific mathematical deficiency is explained here.

The PEG ratio's validity at extremes in particular (when used, for example, with low-growth companies) is highly questionable. It is generally only applied to so-called growth companies (those growing earnings significantly faster than the market).

When the PEG is quoted in public sources it may not be clear whether the earnings used in calculating the PEG is the past year's EPS or the expected future year's EPS; it is considered preferable to use the expected future growth rate.

It also appears that unrealistically high future growth rates (often as much as 5 years out, reduced to an annual rate) are sometimes used. The key is that management's expectations of future growth rates can be set arbitrarily high; this is a self-serving ploy where the objectives are to keep themselves in office and to make the stock artificially attractive to investors. A prospective investor would probably be wise to check out the reasonableness of the future growth rate by checking to see exactly how much the most recent quarter's earnings have grown, as a percentage, over the same quarter one year ago. Dividing this number into the future P/E ratio can give a decidedly different and perhaps a more realistic PEG ratio.

Advantages

Investors may prefer the PEG ratio because it explicitly puts a value on the expected growth in earnings of a company. The PEG ratio can offer a suggestion of whether a company's high P/E ratio reflects an excessively high stock price or is a reflection of promising growth prospects for the company.

Disadvantages

The PEG ratio is less appropriate for measuring companies without high growth. Large, well-established companies, for instance, may offer dependable dividend income, but little opportunity for growth.

A company's growth rate is an estimate. It is subject to the limitations of projecting future events. Future growth of a company can change due to any number of factors: market conditions, expansion setbacks, and hype of investors. Also, the convention that "PEG=1" is appropriate is somewhat arbitrary and considered a rule-of-thumb metric.

The simplicity and convenience of calculating PEG leaves out several important variables. First, the absolute company growth rate used in the PEG does not account for the overall growth rate of the economy, and hence an investor must compare a stock's PEG to average PEG's across its industry and the entire economy to get any accurate sense of how competitive a stock is for investment. A low (attractive) PEG in times of high growth in the entire economy may not be particularly impressive when compared to other stocks, and vice versa for high PEG's in periods of slow growth or recession.

In addition, company growth rates that are much higher than the economy's growth rate are unstable and vulnerable to any problems the company may face that would prevent it from keeping its current rate. Therefore, a higher-PEG stock with a steady, sustainable growth rate (compared to the economy's growth) can often be a more attractive investment than a low-PEG stock that may happen to just be on a short-term growth "streak". A sustained higher-than-economy growth rate over the years usually indicates a highly profitable company, but can also indicate a scam, especially if the growth is a flat percentage no matter how the rest of the economy fluctuates (as was the case for several years for returns in Bernie Madoff's Ponzi scheme).

PEG also has no implicit or explicit correction for inflation (i.e., a company with growth equal to the rate of inflation is not growing in real terms). Hence, the PEG ratio lacks a coherent conceptual framework, and is used primarily as a somewhat intuitive metric of the extent of the growth/price trade-off.

Finally, the volatility of highly speculative and risky stocks, which have low price/earnings ratios due to their very low price, is also not corrected for in PEG calculations. These stocks may have low PEG's due to a very high short-term (~1 year) PE ratio (e.g. 100% growth rate from $1 to $2 /stock) that does not indicate any guarantee of maintaining future growth or even solvency.


From early 2010, this article gives another perspective using perhaps a better gauge of our value here...(depending on who you talk to)


Country "PEG" Ratios
Date Tuesday, January 19, 2010 at 08:06AM

Many investors use the PEG ratio as a valuation tool these days because it puts a company's growth prospects into perspective along with the widely followed price to earnings ratio. The PEG ratio is the P/E ratio over the growth rate, and a PEG of less than one is generally considered good.

In this regard, we have created "PEG" ratios for a number of countries using the P/E ratio of each country's main equity market index along with 2010 estimated GDP growth rates. Just as with stocks, the lower the country PEG, the more attractive. As shown, India has the best PEG out of the countries we analyzed. It has a P/E ratio of 26.19 and estimated 2010 GDP growth of 8%. While its P/E isn't as low as a lot of countries, its growth rate is very high. China ranks second with a PEG of 3.66. The US ranks in the middle of the pack with a P/E of 24.53 and estimated GDP growth of 2.6%. At the bottom of the list sits Switzerland, Italy, and the UK, while Australia, Japan, and Spain have negative PEGs due to either a negative P/E ratio or negative estimated GDP growth.

So, China has an average PEG of 3.66...

With TBJK, let us use 30% as our growth rate (my guess is this is a bare minimum with past and prospective future performance of our new company)...note we have a smaller, high-growth-rate company, so the PEG ratio is VERY APPROPRIATE in this situation...

For a PEG=1, with our 30% growth rate, we would trade at a fair-value P/E of:

1 = (P/E) / 30% ....this is a P/E of 30

For the China average PEG=3.66:

3.66 = (P/E) / 30% ....this is a P/E of 109.8 (you read that right!)

MOST RECENT ANNUAL NET INCOME
Net Income
Net income for the year ended March 31, 2010 was $9.6 million or 26.4% of net revenue, compared to $8.1 million or 26.3% of net revenue for the year ended March 31, 2009, an increase of $1.4 million or 17.7%. The increase was primarily due to increase in net revenue from year 2009 to 2010, partially offset by increases in cost of goods sold and operating expenses as discussed above.

Some Calculations Fully Diluted:
EPS: $9.6M / 12,137,991 = 0.791 per share
P/E of 30: $23.73 share price
equivalent pre-R/S: $23.73 / 540 = 0.044 per share
P/E of 109.8: $86.85 share price
equivalent pre-R/S: $86.85 / 540 = 0.161 per share

MOST RECENT QUARTERLY NET INCOME
Net Income
Net income for the three months ended June 30, 2010 was $3.4 million or 24.5% of net revenue, compared to $2.5 million or 24.4% of net revenue for the three months ended June 30, 2009, an increase of $.9 million or 26.5%. The increase was primarily due to increase in net revenue from three months 2009 to 2010, partially offset by increases in cost of goods sold and operating expenses as discussed above.

Some Calculations Fully Diluted:
Assume $3.4M X 4 quarters = $13.6M net income (realistic TODAY!)
EPS: $13.6M / 12,137,991 = 1.12 per share
P/E of 30: $33.60 share price
equivalent pre-R/S: $33.60 / 540 = 0.062 per share
P/E of 109.8: $122.98 share price
equivalent pre-R/S: $122.98 / 540 = 0.23 per share


For those that wish to think we are even close to fairly valued, you are in for one heck of a wake-up call. The PEG ratio is a better estimate of where we should be valued than solely the P/E as we have a SMALLER, HIGH-GROWTH-RATE company...due your DD on PEG ratios as it applies really well in this situation and gives us those oh-so-unreal price per share targets of WHAT WE ARE WORTH RIGHT NOW!!!...this will move up hard and quick once we hit the big market in short time...

Patience WILL BE REWARDED HERE...awesome high-growth, no debt/litigation, significant EPS stock that is ridiculously undervalued...I care not about a R/M or R/S...the fact is we are worth many multiples of what we are trading at RIGHT NOW...

Cheers All