- See Price/Sales.
Price/earnings-to-growth ratio. The PEG is calculated by dividing a stock's P/E by its projected long-term earnings growth rate. (SmartMoney.com PEGs use forward P/Es, and three-to-five-year growth rates.)
The PEG provides a snapshot of the relationships between three important stock attributes — share price, earnings per share and the rate at which those earnings are expected to grow. Generally speaking, the lower the PEG, the less expensive a stock is relative to its growth projections.
The PEG holds an advantage over the P/E ratio, in that it can be used to compare dissimilar companies, since it adjusts for differences in their growth rates. Note, though, that the long-term growth projections use to calculate PEG ratios should be considered approximations — earnings are difficult enough for analysts to predict in the near-term, to say nothing of three to five years from now.
Bargain growth investors often look for stocks with PEGs below 1.0, although the cutoff is somewhat arbitrary. (The PEG itself has little mathematical basis — for one thing, it divides a ratio by a percentage without first converting one to the other — but is nonetheless a popular and useful gauge.)
- Passive Investing
- An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.
- Passive Structured Portfolio Management
- Use of quantitative tools to track an index closely while maximizing the tax efficiency of a fund. If a trade-off is necessary, the choice usually will be to stress tax efficiency.
- Payable Date
- The date when dividends or capital gains are paid to shareholders. Shareholders can receive their dividends or capital gains in cash or can reinvest them to buy additional shares. See Record Date.
- Payment Default Risk (or Default Risk)
- Although a bond issuer promise to make regular interest payments on the bond and promise to pay back, or redeem, the face value of the bond at the maturity date, some issuers may fail to meet its obligations. Payment default risk refers to the risk that a specific issuer may not be able to meet these obligations.
- Payout Ratio
- The percent of earnings-per-share (EPS) that was paid out as a dividend. It is calculated by dividing the quarterly dividend by the quarterly EPS and multiplying by 100.
- Payroll Deduction Plan
- An arrangement between an employer and a mutual fund, authorized by the employee, through which a specified sum is deducted from an employee's salary to buy shares in the fund.
- Physical Assets
Agricultural, industrial or natural resources that underlie commodity futures.
- Plan Administrator
- The person or, more typically, the company an employer selects to manage its employee retirement plan. The administrator works with the plan provider to ensure that the plan meets government regulations and that employees have the information needed to enroll, select and change investments within the plan and request distributions.
- Plan Sponsor
- The entity, usually an employer, that has established a retirement plan, selected the type of plan and funding options, and determined the method of funding plan benefits.
- Pooled Fund
- A fund that combines unaffiliated plans into one large group to purchase Guaranteed Income Contracts (GICs) and other stable value products. These funds may also be referred to as pooled funds, bank pooled funds, collective funds, or separate accounts.
- A group of securities held by an individual or institution which may contain various types of assets such as stocks and bonds. The purpose of a portfolio is to diversify risk. Portfolio managers are professionals responsible for the securities portfolio.
- Portfolio Allocation
The proportion of a fund's assets invested in stocks, bonds, and cash equivalents, respectively.
- Portfolio Diversification
- See Diversification .
- Portfolio Turnover
- The rate at which the fund's portfolio securities are changed each year. If a fund's assets total $100 million and the fund bought and sold $100 million worth of securities that year, its portfolio turnover rate would be 100%. Aggressively managed funds generally have higher portfolio turnover rates than do conservative funds that invest for the long term. High portfolio turnover rates generally add to the expenses of a fund.
- Pre-Market Price
The price per share of the last reported Pre-Market Trade.
- Pre-Market Trade
- A stock trade that takes place before the regular trading session begins.
- Pre-Tax Margin
- The profitability of a company before taxes are paid. The pre-tax margin is calculated by dividing pre-tax earnings by revenues and then multiplying by 100. The result is expressed as a percentage.
- A class of stock with a fixed dividend that has a preference over a company's common stock in the payment of dividends and the liquidation of assets. There are several kinds of preferred stock, among them adjustable-rate preferred and convertible.
- Preferred Stock Equity
- The amount of shareholders' equity attributable to the preferred stock issued of the parent company.
- Premature Distribution
- Withdrawal of money from a retirement plan before the age of 59½, usually accompanied by a penalty payable to the IRS. The IRS does allow penalty-free distributions before the age of 59½ under various circumstances: disability, death, substantially equal periodic payments, timely contribution withdrawal, nondeductible contributions, rollover distributions, court ordered distributions, medical expenses, health insurance premiums, first-time home buyer, higher-education expenses, IRS levy and qualified reservist distributions.
- (1) The amount by which a bond's market price exceeds its par value. (2) The amount by which an exchange-traded fund's market price exceeds its net asset value.
- Previous Close
- The last trade price of a stock at the end of yesterday's trading session. This value is updated just before the opening of today's trading session.
- Price Earnings Ratio (Price-to-Earnings)
- Stock price divided by last year's earnings. The P/E indicates how much the stock owner pays per dollar of earnings that is generated by the firm on each share. As a generality, the higher the P/E ratio, the more risky and volatile a stock.
- Latest closing share price divided by last reported book value per share, essentially a valuation measure that compares a company's share price with the value of its tangible assets. While most manufacturing companies trade according to their earnings potential rather than the value of their assets (making the PE and PEG ratios more relevant for valuing their shares), the price/book ratio is still widely used to asses banks and insurance companies.
- Price/Book Ratio
- The price per share of a stock divided by its book value (i.e., net worth) per share. For a fund, the ratio is the weighted average price/book ratio of the stock in the fund's portfolio.
- Price/Cash Flow
The ratio of a stock's latest closing price divided by cash flow per share for the past 12 months.
- Price/Earnings Ratio (P/E ratio)
- The ratio of a stock's current price to its per-share earnings (P/E) over the past year. For a fund, the ratio is the weighted average P/E of the stock in the fund's portfolio. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company's future growth in earnings.
Latest closing price divided by trailing 12-month sales per share.
Like the P/E, the P/S is a valuation ratio. While earnings are one of the primary drivers of share price performance, many investors consider sales to be a more reliable measure of income, since they're less subject than earnings to accounting subjectivity. (Sales appear at the top of companies' income statements, before adjustments for things like depreciation and amortization have been made.
Generally speaking, the lower a company's P/S ratio is, the cheaper its shares appear, although other factors, like low profitability or the recent divesting of a revenue-generating business unit, can make a company's trailing P/S ratio look unusually low. P/S comparisons should be made between companies in like industries. The P/S ratio is particularly useful for evaluating stocks that have no earnings.See P/S.
- Primary Market
- The primary market is the market for new issues of securities. Primary is distinguished from the secondary market where previously issues securities are bought and sold.
- Prime Rate
- The interest rate banks charge their most creditworthy customers. The rate is determined by the market forces that affect a bank's cost of funds and the rates that borrowers will accept. The prime rate is a key interest rate for commercial lending.
- The face amount of a deposit to a debt obligation or investment on which interest is earned.
- Principal Only Obligation (or PO Obligation)
- A tranche of mortgages-backed securities whose owner receives only the principal payments made by the underlying mortgages. During a period of falling interest rates, rapid repayments of principal by mortgage holders increases the value of the principal-only obligations. During periods of rising interest rates, principal payments may slow down and the value of the principal only obligations will decline.
- Private Placement
- The sale of securities to a limited number of investors at the initial stages of a company's operations, a private placement may allow investors to invest in attractive companies before the company sells stock to the public.
- Pro Forma
Describes financial statements that deviate from generally accepted accounting principles, or GAAP, in order to provide meaningful comparisons or projections. Pro Forma earnings, for example, often exclude non-recurring charges such as goodwill amortization, and may include hypothetical assumptions, such as the closing of a proposed merger.
While pro-forma earnings are useful for determining whether a company has exceeded or missed analysts' estimates, they should be used with caution by investors. Companies that continuously show large discrepancies between their GAAP and pro forma earnings demonstrate that their "non-recurring" charges recur all too often.
- Pro forma earnings for the indicated period, divided by the weighted average number of common shares outstanding.
- Judicial process whereby the will of a deceased person is presented to a court and an executor or administrator is appointed to carry out the will's instructions.
- The official legal document that describes a fund and offers its shares for sale. Under certain circumstances, a prospectus must be given to all investors before they invest, or in connection with their purchase confirmation.
- A policy of imposing tariffs, quotas or other handicaps on imported goods to make them less attractive to consumers. Historically, protectionism has increased during periods of economic difficulty, as governments seek to maintain or increase domestic production and jobs. Also historically, protectionist actions by one country have been met with retaliatory actions by its trading partners. Such retaliation can negatively affect the very production and jobs the initial actions sought to protect. Also, protectionist policies effectively raise consumer prices; limit consumer choice; and may leave them able to afford fewer domestically produce goods.
- (1) Document providing shareholders with background information on management and large shareholders and on matters to be voted on by stockholders. (2) A written authorization that allows one person to act for another. For example, shareholders who are unable to attend a fund's annual meeting may mail in their ballots and vote by proxy. (1) and (2) are often combined in the solicitation of shareholder votes.
- Public Offering Price (POP)
The purchase price of one fund share, including any up-front sales charge.
- Public-Private Investment Program (PPIP)
- A program created by the U.S. Treasury and the Federal Deposit Insurance Corporation to spend TARP funds to buy toxic or legacy assets; the program also allows private investors to use their own funds to buy such assets. The program is intended to allow taxpayers to share in the upside that government funding may produce.
- Purchase Block
- A tool used to minimize the negative effects of excessive short-term trading.