Price/Earnings To Growth - PEG Ratio

What is the 'Price/Earnings To Growth - PEG Ratio'

The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings ratio divided by the growth rate of its earnings for a specified time period. The 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 low 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

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BREAKING DOWN '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.

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RELATED FAQS
1. 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 >>
2. 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 >>
3. 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 >>
4. What metrics are commonly used to evaluate companies in the retail sector?

Discover three of the most common metrics used to evaluate companies in the retail sector, and find out how each plays an ... Read Answer >>
5. Over what duration should I be examining a given stock's PEG (price to earnings growth) ...

Learn how the PEG ratio provides an assessment of a stock's current price based on its trailing or projected earnings growth ... Read Answer >>
6. How do I use the PEG (price to earnings growth) ratio to determine whether a stock ...

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