This week, we cover the Value on the Move strategy using historical growth and give you a list of stocks currently passing the AAII Value on the Move PEG With Historical Growth screen. Growth strategies have done well, but long-term studies still point to successful investing results by following a disciplined contrarian, value-driven strategy.
There are many popular metrics investors use to find mispriced stocks, but concerns over getting caught in a “value trap” loom. This occurs when a stock appears to be attractive based on valuation multiples, but the price remains depressed. The trap is that the stock’s seemingly low price is actually appropriate. A value trap can also occur when a stock is undervalued but other investors fail to catch on to the mispricing. A good way to avoid this problem is to look for stocks with characteristics besides a low valuation that would justify a higher price.
The Value on the Move strategy focuses on finding stocks that are growing while currently trading at a reasonable price. As of September 30, 2026, AAII’s Value on the Move PEG With Historical Growth screen has an average annual gain of 13.6% since inception in 1998, versus 7.5% for the S&P 500 index over the same period.
Value on the Move Strategy Overview
Value screens seek out companies trading with low prices relative to actual measures of company performance or assets. The price-earnings (P/E) ratio, or multiple, is computed by dividing a stock’s price by trailing 12-month earnings per share. The price-earnings ratio is followed closely because it embodies the market’s expectations for future company performance and risk through the price component of the ratio and relates it to historical company performance as measured by earnings per share.
However, a simple search for low price-earnings ratios can be misleading as a screen for undervalued stocks. Price-earnings ratios adjust to expectations for future earnings performance. Stocks with high expectations normally trade with high price-earnings ratios, while stocks with low perceived growth potential or low probability of achieving their growth potential trade with low price-earnings ratios. Simple screens for low price-earnings stocks without additional qualifiers typically turn up lists of troubled stocks or stocks with earnings expected to drop in the future. It is not uncommon to see firms in dying industries, companies on the brink of insolvency or even stocks facing potentially devastating litigation pass low price-earnings screens. Screening for high price-earnings stocks is not the answer either. While firms with high price-earnings ratios normally have everything going well for them now, investors have typically overpaid for their expectations.
As investors change their perceptions of the risk-reward possibility of a stock, the price-earnings multiple changes to reflect the new consensus. A stock that exceeds expectations could get a large price boost from an expansion of the price-earnings ratio coupled with the actual earnings increase. However, stocks with very high expectations often get hammered after issuing an earnings warning, as analysts decrease the price-earnings ratio they are willing to pay for the firm in addition to lowering future earnings estimates. Stock movement is not only controlled by the level of earnings, but it is also affected by results compared to expectations. Your analysis should focus on whether the market consensus of future earnings growth is realistic.
Price-Earnings to Earnings Growth: The PEG Ratio
One of the most popular techniques used to balance the relationship of company value to growth involves simply relating the price-earnings ratio to its earnings growth. The price-earnings-to-earnings-growth (PEG) ratio is computed by dividing the price-earnings ratio by the earnings growth rate. Ratios below 1.0 indicate that a stock may be undervalued, while ratios above 1.0 indicate that a stock may be overvalued. The idea is to purchase a stock with demonstrated or expected earnings growth before the market recognizes the company’s potential and bids up the price-earnings ratio.
The PEG ratio can be created using either the historical or expected growth rate. Investment analysis is forward-looking. While historical earnings are easy to view, expectations are more difficult to judge. Services such as S&P Global Market Intelligence collect and report analyst expectations for earnings, but many small-cap companies will have only a small number of analysts tracking earnings, if any at all.
A PEG ratio using expected growth should help to highlight firms with reasonable price-earnings ratios given their expected growth rates. Keep in mind that studies indicate that even analysts are normally too optimistic in their long-term growth forecasts for firms with high expectations.
A PEG ratio constructed with historical earnings growth should highlight firms that are priced reasonably given their record of accomplishment. It should also highlight a broader range of companies. The weakness of relying solely on historical growth is that it may no longer be reflective of future potential.
AAII tracks two versions of Value on the Move screen, one that uses PEG with historical growth and one that uses PEG with estimated growth. Both screens target companies with PEG ratios greater than 0.2 and less than or equal to 1.0.
Very high growth rates are not sustainable. Normally, growth rates above 20% per year cannot be sustained in the long term. Extremely high growth rates are usually due to special situations in which earnings for the base year of the growth rate calculation are near zero or negative. The screen does not set a floor or limit for the growth rate used in the PEG ratios, but you should carefully examine both the year-by-year historical figures and the basis of the expected company growth.
It is important to remember that the growth rate is a raw growth figure that does not divulge any change in trend or indicate the variability of earnings. The easiest and most direct way to judge earnings is to directly examine the earnings year by year, looking for stability and accelerating growth. The primary Value on the Move criteria require positive earnings per share from continuing operations for the trailing 12 months and each of the last five years.
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Quarterly Earnings Strength
Value screens such as low price-earnings filters are good at identifying neglected firms, but secondary screens for quarterly earnings growth are useful complements. Quarterly earnings may indicate a change in the trend of earnings more quickly than just examining annual earnings figures. Quarterly earnings are closely examined by the market, and deviations from the expected norm are quickly rewarded or punished.
When studying quarterly earnings, you typically cannot compare one quarter to the previous quarter in a meaningful manner. It is more useful to look at “quarter-on-quarter” or “comparable-quarter” earnings changes (also called “year-over-year” changes), where one quarter is compared to the same quarter from the previous year. Many firms have annual seasonal cycles in either sales or production; the stronger the pattern, the more important it is to make quarter-on-quarter comparisons.
AAII’s Value on the Move screens require that each of the last four quarters’ earnings per share be higher than that of the same quarter one year earlier.
As always, it is important to look at the factors leading to the growth and determine if the growth is sustainable. When examining a firm’s earnings patterns, it is necessary to carefully read both quarterly and annual reports, which can clue you in to possible explanations in the earnings growth pattern. Is the economy expected to slow down? Was a significant portion of the earnings growth achieved through acquisition or internal growth? Did earnings growth in a franchise come from increases in same-store sales or the opening of new stores? Did currency translations impact earnings? Are competitive conditions changing within the industry? Are margins increasing or decreasing? For example, without increasing sales and earnings from existing stores or steady or improving margins, earnings momentum may slow.
Price Momentum
Price momentum is often used as a signal that the market has recognized the relative attractiveness of a company. Price momentum is normally measured by comparing the stock price change to that of a market index or against a segment of stocks. Investors look for stock price performance better than that of other stocks with the belief that the rising price will attract other investors, who will drive up the price even more.
There are many tools used to measure price momentum; the Value on the Move screens rely on the relative strength rank. The relative strength rank indicates how a company’s stock price has performed relative to all other stocks. A rank of 50% indicates that the stock’s performance is better than 50% of all firms, while a rank of 90% indicates that a stock has outperformed 90% of all stocks. We specify a minimum relative strength rank of 70% over the last 26 weeks for our Value on the Move screens. Looking at performance over the last half year helps to identify stocks that have had relevant strong price performance.
Patience Is Required
The table below presents the companies with low historical PEG ratios, along with their estimated PEG ratios. Both PEG ratios use the current price-earnings ratio, but they use different growth rates. The estimated PEG ratio is calculated using the S&P Global consensus estimate for the long-term earnings per share growth rate, while the historical PEG ratio is calculated using the historical five-year growth rate. The companies in the table are ranked by relative price strength.
Value screens attempt to identify undervalued stocks. However, patience is required while waiting for the market to recognize the value of a stock. Combining value with price and earnings momentum screens should help to identify reasonably priced stocks on the move. But always keep in mind that the purpose of these screens is to illustrate a potential useful combination of value and momentum analysis with real firms. The screens are a mere first step in the stock selection process.
Top 20 Stocks Passing the Value on the Move PEG With Historical Growth Screen (Ranked by 26-Week Relative Strength Rank)
Keep in mind that no matter how well a stock screening methodology has performed (or how badly it has underperformed) over the long term, stock screening is only the first step in the stock selection process. You will want to do your homework to see why these companies are at their current levels. Only then will you gain insight into those that will continue to languish and those that may eventually flourish
The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence to verify the financial strength of the passing companies and to identify those stocks that match your investing tolerances and constraints before committing your investment dollars. Keep in mind that the quantitative screens AAII has developed are based upon our interpretations of published works tied to the market gurus.
The 13.6% average annual gain since 1998 versus 7.5% for the S&P 500 is the headline, but the point that low P/E screens alone tend to surface troubled stocks is the more useful caution. Requiring growth alongside a reasonable price, as the PEG screen does, addresses the value-trap problem.