Does PEG Ratio assume a linear or non linear relationship between P/E and Growth?
TT Mckinley indicates that it doesn’t assume a non linear relationship but Wiley writes that it incorrectly assumes a linear relationship! which one is right???
PEG assumes a linear relationship between P/E and growth.
This is a disadvantage of the model as P/E and G do not tend to move linearly. Therefore when it says it incorrectly assumes it is saying it as a disadvantage of the model
“TT Mckinley indicates that it doesn’t assume a non linear relationship”
This means that it assumes a linear relationship.
One of the disadvantages of the PEG ratio is that it assumes a linear relationship, when the relationship isnt truly linear.