There’s been a lot of recent excitement posted on this board over 1YPEG as a financial indicator. It appears that at least some folks are pretty much willing to let the value of 1YPEG drive buy/sell decision process.
This post is not intended to be a “wet blanket”, but I think maybe a little perspective might be in order.
Not too long ago there was a thread on this board about Cognex (CGNX). Referring to Kevin’s spreadsheet, CGNX sports a 1YPEG of .55, not quite low enough to paint the cell green, but low enough to warrant attention. A bit more investigation reveals a debt burden if $0 and $178M cash. Despite the good financial news, the conclusion of the CGNX thread was that the company did not represent a very good investment opportunity.
How so?
It turns out that there is nothing about the vision systems sold by Cognex that brings the customer back for more - more product, more replacement parts, more services, more consultations, more anything. Every sale is like the last house on a dead end street.
The point being that a low 1YPEG does not constitute sufficient information for making the decision to buy or sell a company. It’s a useful data point. It serves as factor worthy of consideration when one is in the process of an investment evaluation. But I am suggesting that you should be cautious about assigning too much gravity to this singular indicator.
