In this market, the spotlight is very much focused on big growth companies: the Nvidias and Alphabets of the world that are doing hundreds of billions in deals. That’s all well and good, but what about fundamentals-focused investing? Are there any companies presenting good opportunities outside of hyperscalers and tech stocks?

We think so. Today, we’re going to give you a major fundamental analysis tool that will help you evaluate stocks more clearly in 30 seconds. More importantly, we’re going to walk you step-by-step through analysis of a real stock pick that’s ranked #1 on AltIndex at the time of writing. (Hint: it’s not an AI or biotech stock. How refreshing is that?)

In today’s issue:

🔑 A Key Stock Metric to Live By
🤓 Real-World Examples
✅ One Stock That Stands Out

So without further ado, let’s jump right in.

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If you feel like you need other people to tell you if a stock might be under- or over-valued, think again. It’s surprisingly easy to do the calculations that analysts do, and it’s even easier to understand the indicators that they use (once you get past the jargon). 

And although there are hundreds of indicators and metrics you could learn, some are far more applicable than others.

We’re going to focus on 1 particular fundamental metric that most people don’t talk about, but that will give you a ton of value all on its own. 

We aren’t trying to sell you snake oil or overhype something here, this is just a metric we almost never see investors using.

It’s called the PEG ratio, and it can give you a ton of information in about 30 seconds.

PEG ratio stands for “price/earnings to growth ratio.” That means the PEG takes the price/earnings (P/E) ratio and then divides that by a growth rate; specifically, it uses the earnings-per-share (EPS) growth ratio forecast, usually over a 5 year period. We’ll be looking at the “forward PEG ratio,” since we’re most interested in what a stock looks like it will do in the future.

Some terms:

Essentially, the PEG ratio compares a stock’s price to how much it’s expected to grow. If the PEG ratio is above 1, that means the company has to grow even more in order for the stock to keep going up. If the PEG ratio is below 1, that means the company is either trading in line with the growth rate or may even be undervalued, according to Investopedia.

Example #1: Nvidia’s (NVDA) forward P/E ratio is 23.87 right now. Its estimated future EPS growth rate is 33.46%. All you have to do to get the PEG ratio is to divide P/E by EPS growth rate forecast:

Nvidia’s PEG ratio = P/E ÷ EPS growth rate forecast
= 23.87/33.46
= 0.71

So NVDA has a forward PEG ratio below 1, which means the stock is likely either undervalued or in line with its growth trajectory. Overall a good thing!

Example #2: Intuit’s (INTU) forward P/E ratio is 28.25, but its future EPS growth rate forecast is 24.91%. Let’s do the PEG calculation:

Intuit’s PEG ratio = 28.25/24.91
= 1.13

As you can see, INTU’s forward PEG ratio doesn’t look as good as Nvidia’s. It’s above 1, meaning that the company will have to grow at an even faster rate in order for the stock to rise (in other words, the stock might be overvalued).

Just like with any stock indicator or metric, it’s important to not overemphasize PEG ratios over other metrics. It’s best to evaluate PEG within the context of other metrics. 

It’s also key to remember that PEG ratios are completely dependent on growth projections, and if a company doesn’t grow as much as it’s projected to over the next 5 years, a PEG ratio could end up being way off.

To drive home the metric, let’s take a look at the number-one-ranked stock on AltIndex right now through the lens of its forward PEG ratio.

AltIndex’s AI model has been highlighting Alamos Gold as a serious “buy” for quite a while, but the stock has now broken through to #1 on the site. Why does it look so primed to outperform?

Let’s start with the PEG ratio.

First, Alamos Gold’s forward P/E ratio (the top part of the PEG equation) is 13.53.

Next, AGI’s EPS growth rate forecast (the bottom part of the PEG equation)  is a solid 45.01% over the next 5 years.

AGI’s PEG ratio = 13.53/45.01
= 0.30

That’s quite low, indicating that AGI might be undervalued. But let’s not stop there. What are some other key pieces of information about the stock? We need more context.

Well, for starters, while AGI’s forward P/E (the coming 12 months) is 13.53, what’s its trailing P/E (the previous 12 months)? 

Trailing P/E ratio: 26.87

That’s about twice what its forward P/E is, which means analysts are expecting earnings to roughly double. The 45.01% EPS ratio supports that trajectory.

Next: Net income has grown a remarkable 223.36% year over year, further supporting a strong growth trajectory.

And finally, AltIndex’s AI rates Alamos Gold as an 86/100, which is a “strong buy” rating. It’s very rare to see a stock get a rating above 80 on AltIndex (we’ve never even seen a 90 before), so 86 is huge.

This is not financial advice, and you should always do your own research.

No single metric or indicator is everything in the stock market, but you can’t build a legitimate case for any investment without looking at some key ratios. We think that PEG ratios are a great tool to put in your back pocket, especially because you have to understand P/E ratio and EPS to calculate it. Those are good fundamental tools to have too.

Alamos Gold looks like it might be leaning toward continued growth in the near future based on the analytics we covered in this edition (including its PEG ratio). Remember that we aren’t financial advisors and that you must always do your own research and make all your own decisions. 

That’s all for today’s special edition. We hope you got value from it. Reply and let us know if you did. 

Until next week,

— Brandon & Blake