A Comparative Study of P/E Ratio and Adjusted PEG Ratio in Explaining the Stock Returns of Companies Accepted in Tehranʹʹs Stock Exchange

The term investment covers many activities and refers to paying money for buying a property whether actual or financial for attainment of profit in the future. According to many investors, this activity is interesting and even causes enthusiasm as well whether in the theoretical world or the actual world where the individual enters the scene of investment; and this issue is clearer regarding financial assets. A great number of scholars over successive years examined Stock Exchange Markets in order to realize how the best things can be selected for investment; and in this regard types of analyses including technical and fundamental analyses and theories including Markowitz portfolio theory were brought; yet the accurate perception of many of these concepts may be difficult for ordinary investors. In fact, many investors use price/earnings per share ratio (P/E ratio) and the adjusted P/E for comparison of the stocks with one another and selection of the best things; yet the P/E ratio alone may not have the capability by means of which to select the best things since many effective items are concealed in the aforementioned ratio the most important of which is the expected growth rate in earnings per share which is a greatly important variable in evaluation of the stock. In order to solve this flaw in the capital markets another ratio called the price to earnings per share adjusted based on growth ratio (PEG ratio) has been brought. Regarding each of the ratios above some studies have been conducted and considerable results have been achieved as well. In the present study, the standards above are studied and their adequacy is compared.