A Comparison Can P/E and P/E Growth and Risk-Adjusted Basis in Explaining Stock Returns

Today, price/earnings ratio (P/E ratio) doesnʹt meet the needs of the investors. Adjusted price/earnings to growth and risk ratio (PERG ratio) is a stronger index of valuation of the stock price based on P/E ratio which provides more useful information for the investors. This study is aimed at answering the question of which one of the P/E ratios or adjusted PERG ratios can better explain the stock returns of the companies. The research sample includes 89 of the companies accepted in Tehranʹs Stock Exchange between the years 2007-2011. In this study using combined data and multiple regression analysis by E-Views Software and the data panel model, the research hypotheses were tested. The results obtained showed that the stock returns with the adjusted PERG ratio function better than the stock returns with the P/E ratio.