Definition
The PEG ratio helps investors find potentially undervalued stocks by factoring in earnings growth. A PEG of 1 suggests fair value, below 1 may indicate undervaluation, and above 1 may suggest overvaluation. It's particularly useful for comparing growth companies with different P/E ratios.
Formula
Example
A stock with P/E of 30 and expected 30% annual growth has a PEG of 1.0. Another stock with P/E of 15 but only 10% growth has a PEG of 1.5, suggesting the first may be better value despite higher P/E.
FAQ
What is PEG Ratio (Price/Earnings to Growth)?
A valuation metric that adjusts P/E ratio by expected earnings growth rate.
How do you calculate PEG Ratio (Price/Earnings to Growth)?
A common formula for PEG Ratio (Price/Earnings to Growth) is: PEG Ratio = P/E Ratio / Annual EPS Growth Rate
Why is PEG Ratio (Price/Earnings to Growth) important?
PEG Ratio (Price/Earnings to Growth) helps investors evaluate valuation and make more informed decisions.
Related Terms
P/E Ratio (Price-to-Earnings)
A valuation ratio comparing a company's stock price to its earnings per share.
Forward P/E Ratio
A valuation ratio using estimated future earnings instead of trailing earnings.
Growth Investing
A strategy focused on companies expected to grow earnings faster than average.
Earnings Per Share (EPS)
A company's profit divided by the number of outstanding shares.