What investors are really paying for when they buy shares of Starbucks is future growth. The PEG ratio, or a stock's forward P/E divided by the firm's projected earnings-growth rate, is a good way to compare the price of growth across firms. Starbucks' PEG ratio of 1.8 (as of January 2000) meant that its P/E exceeds its estimated five-year growth rate by 80%. But the average aggressive-growth stock had a PEG of 2.9, so again, Starbucks doesn't look so expensive.
Conclusion: Knowing the Odds >>