Back to Home
PEG Ratio
(Price/Earnings to Growth Ratio)
The PEG Ratio (Price/Earnings to Growth) is a valuation metric that adjusts the traditional P/E ratio by accounting for a company's expected earnings growth. Calculated as (P/E Ratio) / (Annual EPS Growth), it provides a more complete picture of a stock's value.
A PEG of 1 suggests fair valuation, below 1 may indicate undervaluation, and above 1 potential overvaluation. For example, a stock with a P/E of 20 and expected 10% annual growth would have a PEG of 2. Popularized by Peter Lynch, the PEG helps compare companies with different growth rates. However, it relies on earnings growth projections which can be unreliable, especially for high-growth tech stocks.
A PEG of 1 suggests fair valuation, below 1 may indicate undervaluation, and above 1 potential overvaluation. For example, a stock with a P/E of 20 and expected 10% annual growth would have a PEG of 2. Popularized by Peter Lynch, the PEG helps compare companies with different growth rates. However, it relies on earnings growth projections which can be unreliable, especially for high-growth tech stocks.