PEG Payback Period

DEFINITION of 'PEG Payback Period'

A key ratio that is used to determine the time it would take for an investor to double their money in a stock investment. The price-to-earnings growth payback period is the time it would take for a company's earnings to equal the stock price paid by the investor. A company's PEG ratio is used rather than their price-to-earnings ratio because it is assumed that a company's earnings will grow over time.

BREAKING DOWN 'PEG Payback Period'

The best reason for calculating the PEG payback period is to determine the riskiness of an investment. Generally the longer the payback period the more risky an investment becomes. This is because the payback period relies on the assesment of a company's earnings potential. It is harder to predict such potential further into the future, and subsequently there is a greater risk that those returns will not occur.

RELATED TERMS
  1. Payback Period

    The length of time required to recover the cost of an investment. ...
  2. Discounted Payback Period

    A capital budgeting procedure used to determine the profitability ...
  3. Exclusion Ratio

    The portion of the return on investments that is income tax exempt. ...
  4. Price/Earnings To Growth - PEG ...

    Price/Earnings to Growth (PEG) is a stock's price to earnings ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present ...
  6. Implied Call

    A right given to mortgage borrowers that allows them to call ...
Related Articles
  1. Investing

    Payback Period

    Payback period is the time it takes for an investment to generate an amount of income or cash equal to the cost of the investment. The shorter the payback period, the better the investment is ...
  2. Investing

    Understanding The Discounted Payback Period

    It’s similar to a simple payback, but a discounted payback period accounts for money’s time value. It’s a more precise estimate of when investors will recover their total investment.
  3. Investing

    An Introduction to Capital Budgeting

    Firms use capital budgeting to determine if a project, like building a new plant or developing a new product, is worth pursuing.
  4. Trading

    Advantages of the PEG Ratio over the P/E Ratio

    Earnings are critical to any company’s future prospects, but other factors are important, too.
  5. Trading

    How To Use The P/E Ratio And PEG To Tell A Stock's Future

    While the price-to-earnings ratio is commonly used for assessing stock prices, the price/earnings-to-growth ratio offers forecasting advantages that investors need to know.
  6. Investing

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  7. Investing

    PEG Ratio

    Learn more about how this ratio is used to determine a stock's value based on its earnings growth.
  8. Investing

    The 4 Basic Elements Of Stock Value

    Investors use these four measures to determine a stock's worth. Find out how to use them.
  9. Investing

    How To Find P/E And PEG Ratios

    If these numbers have you in the dark, these easy calculations should help light the way.
  10. Investing

    The 4 Basic Elements Of Stock Value

    The ancient Greeks considered earth, fire, air and water the building blocks of all matter. Here are the four basic elements to break down a stock’s value.
RELATED FAQS
  1. What are some of the limitations and drawbacks of using a payback period for analysis?

    Examine the payback period method of analyzing proposed capital investment projects, and learn about its advantages and disadvantages. Read Answer >>
  2. How do you find the break-even point using a payback period?

    Understand what a company's breakeven point is and what its payback period is. Learn why a company would want to track both ... Read Answer >>
  3. How do I create grouping schedule codes and subcodes for trial balances?

    Find out more about the payback period, what it measures and how to calculate the payback period of a company's project using ... Read Answer >>
  4. What is considered a good PEG (price to earnings growth) ratio?

    Learn about the price/earnings to growth (PEG) ratio and understand what investors and market analysts consider a good ratio ... Read Answer >>
  5. When computing the PEG ratio for a stock, how is a company's earnings growth rate ...

    Remember that the price/earnings to growth ratio (PEG ratio) is simply a given stock's price/earnings ratio (P/E ratio) divided ... Read Answer >>
  6. Why is the PEG (price to earnings growth) ratio something I should be looking at ...

    Understand the price/earnings to growth ratio and why it may be a better stock valuation tool than the more widely used price-earnings ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center