The PEG ratio is a valuation metric that compares a company’s price-to-earnings (P/E) ratio to its expected earnings growth rate. It is used to determine whether a stock is overvalued or undervalued relative to its earnings growth.
To calculate the PEG ratio, you divide the P/E ratio by the company’s expected earnings growth rate. For example, if a company has a P/E ratio of 20 and an expected earnings growth rate of 10%, its PEG ratio would be 2.
A PEG ratio of 1 is generally considered to be fairly valued, while a ratio above 1 may indicate that the stock is overvalued, and a ratio below 1 may indicate that the stock is undervalued. However, it’s important to note that the PEG ratio is just one tool among many that can be used to evaluate a stock, and it should be considered in conjunction with other factors such as the company’s financials, industry trends, and economic conditions.
The information in this post and elsewhere on this website is for entertainment and educational purposes only. None of the information provided should be considered individual investing, accounting, tax, or legal advice. Please consult an appropriate professional before acting on any particular strategy.
Leave a Reply