Price-to-Earnings-to-Growth (PEG)

What is the PEG Ratio ?

The PEG Ratio (Price-to-Earnings-to-Growth ratio) is a fincancial ratio similar to the is a PE ratio but taking into account the growth rate of the company.

How to Calculate PEG Ratio ?

The PEG ratio is calculated by dividing the price-to-earnings (PE) ratio of a company by its earnings growth rate. The formula for calculating the PEG ratio is as follows:

PEG Ratio = PE Ratio / Earnings Growth Rate

It is expressed as a number, usually without a unit.

For example, if a company has a P/E ratio of 10 and is expected to grow over the next five years at a rate of 10%, the company's PEG ratio would be 1.

What is a good PEG Ratio ?

The lower the PEG ratio, the more attractive the stock value is to investors. Companies with a low PEG ratio may include growth stocks that may be undervalued or value stocks that have potential. Generally, the PEG ratio should be lower than 1 for long-term investors to consider the stock attractive.

Peter Lynch, a famous investor and author of the bestselling book "One Up On Wallstreet" famously said that a PEG Ratio lower than one is a reasonable indication that a stock has potential.