PEG = Price/Earnings/Annual Earnings Growth per Share
A lower ratio indicates a less expensive stock with higher earnings and growth, while a higher ratio indicates the opposite. According to Peter Lynch, who popularized the ratio, a fairly priced stock has a ratio of 1.
What Does Price/Earnings to Growth Ratio (PEG Ratio) Mean?
A ratio used to determine a stock's value while taking into account a company's earnings growth. The calculation is as shown here:
Investopedia explains Price/Earnings to Growth Ratio (PEG Ratio)
PEG is a widely used indicator of a stock's potential value. It is favored by many over the price-earnings ratio because it also accounts for growth. It is similar to the P/E ratio in that a lower PEG means that the stock is more undervalued. One should keep in mind that the numbers used in the calculation are projected and therefore are only estimates. Also, there are many variations using earnings from different time periods (e.g., one year versus five years). An investor should know the exact method the source is using.
Related Terms:
• Accounts Receivable—AR
• Balance Sheet
• Earnings
• Earnings per Share—EPS
• Price-Earnings Ratio—P/E Ratio
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