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5 Stocks With High PEG Ratios to Avoid

MILLBURN, N.J. (Stockpickr) -- Recently, I highlighted stocks with low PEG ratios in "Stocks Promising Growth at a Reasonable Price." As a GARP investor, my investment strategy seeks out stocks selling at low price-earnings-to-growth ratios.

As a reminder, The PEG ratio adjusts the P/E ratio for growth. A stock with a P/E of 16 growing earnings at 10% per year will have a PEG of 1.6. The lower the PEG, the less we are paying for future growth. The higher the PEG, the riskier the stock is because of the dual sensitivity to both changes in current earnings and future growth.

The objective for GARP, or growth at a reasonable price, investors such as me is to seek out stocks with PEG ratios closer to 1 and avoid stocks with PEG ratios closer to 2.

Related: 5 Market Leaders Set to Soar

This time around, I want to look at stocks at the opposite side of the ledger: those with high PEG ratios. These stocks should be avoided or risk-managed with caution, because they invite too much risk into one's portfolio.

Here are five high-PEG stocks to keep on your radar screen, especially as we enter earnings season. Some may be good short-sale candidates while other may require a bit of cautious oversight for long investors or traders.

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