PEG Payback Period

AAA

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.

INVESTOPEDIA EXPLAINS '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. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  2. Payback Period

    The length of time required to recover the cost of an investment. ...
  3. Price/Earnings To Growth - PEG ...

    A stock's price-to-earnings ratio divided by the growth rate ...
  4. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  5. Price/Earnings to Growth and Dividend ...

    A variation of the price-to-earnings ratio where a stock's value ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. What are common growth rates that should be analyzed when considering the future ...

    Some of the most common growth rate metrics that investors and analysts consider in evaluating a company's future prospects ... Read Full Answer >>
  2. Why would a value investor include an allocation to the airline sector?

    It's reasonable for a value investor to include some asset allocation to the airline industry for two main reasons. First, ... Read Full Answer >>
  3. What price metrics can be used to compare companies in the industrial sector?

    Some of the best equity valuation metrics for comparing companies in the industrial sector are operating profit margin, return ... Read Full Answer >>
  4. How can I tell whether a particular small cap stock has a positive investment outlook?

    The investment outlook for a small-cap stock is determined by operational outlook and current stock price. The operational ... Read Full Answer >>
  5. Why is the PEG (price to earnings growth) ratio something I should be looking at ...

    The price/earnings to growth, or PEG, ratio is something that should be looked at when evaluating a given stock, because ... Read Full Answer >>
  6. How do I use the PEG (price to earnings growth) ratio to determine whether a stock ...

    The PEG ratio, or price/earnings to growth ratio, is a good tool for determining stock valuation when you need to make a ... Read Full Answer >>
Related Articles
  1. Forex Education

    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.
  2. Markets

    PEG Ratio Nails Down Value Stocks

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

    Understanding The P/E Ratio

    Learn what the price/earnings ratio really means and how you should use it to value companies.
  4. Investing Basics

    What's a P&L Statement?

    A profit and loss statement, also called the income statement, is a financial statement that companies use to report their income and expenses for a quarter or a year.
  5. Investing

    PEG Ratio

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

    How To Find P/E And PEG Ratios

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

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!