Price/Earnings To Growth - PEG Ratio

Filed Under » , ,
Dictionary Says

Definition of 'Price/Earnings To Growth - PEG Ratio'

A stock's price-to-earnings ratio divided by the growth rate of its earnings for a specified time period. The price/earnings to growth (PEG) ratio is used to determine a stock's value while taking the company's earnings growth into account, and is considered to provide a more complete picture than the P/E ratio. While a high P/E ratio may make a stock look like a good buy, factoring in the company's growth rate to get the stock's PEG ratio can tell a different story. The lower the PEG ratio, the more the stock may be undervalued given its earnings performance. The calculation is as follows:

P/E ratio ÷ Annual EPS Growth
Investopedia Says

Investopedia explains 'Price/Earnings To Growth - PEG Ratio'

The PEG ratio that indicates an over or underpriced stock varies by industry and by company type, though a broad rule of thumb is that a PEG ratio below one is desirable. Also, the accuracy of the PEG ratio depends on the inputs used. Using historical growth rates, for example, may provide an inaccurate PEG ratio if future growth rates are expected to deviate from historical growth rates. To distinguish between calculation methods using future growth and historical growth, the terms "forward PEG" and "trailing PEG" are sometimes used.

Get more acquainted with the PEG ratio by reading PEG Ratio Nails Down Value Stocks and How To Find P/E And PEG Ratios.

Related Video for 'Price/Earnings To Growth - PEG Ratio'

Articles Of Interest

  1.

    Equity Valuation: The Comparables Approach

    The main purpose of equity valuation is to estimate a value for a firm or security. There are three primary equity valuation models: the discounted cash flow (DCF), cost and comparable approaches. ...

  2. How To Find P/E And PEG Ratios

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

  3. DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.

  4. PEG Ratio

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

  5. How To Choose The Best Stock Valuation Method

    Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one.

  6. 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.

  7. PEG Ratio Nails Down Value Stocks

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

  8. Pick Stocks Like Peter Lynch

    Learn the basic tenets that helped this famous investor earn his fortune.

  9. When computing the PEG ratio for a stock, how is a company's earnings growth rate determined?

    Remember that the price/earnings to growth ratio (PEG ratio) is simply a given stock's price/earnings ratio (P/E ratio) divided by its percentage growth rate. The resulting number expresses how ...

  10. Understanding The P/E Ratio

    Learn what the price/earnings ratio really means and how you should use it to value companies.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center