Price/Earnings to Growth (PEG Ratio)
The PEG ratio is calculated by dividing the P/E ratio by the growth rate in the company’s EPS. The growth rate may be annual or a compounded average over a few years. A stock with a P/E of 20 and a growth rate of 20% would have a PEG of 1.
PEG is widely viewed as a better alternative to the P/E ratio as it factors in growth as well. However, the PEG ratio is not a very precise mathematical formula, as the growth rate is essentially a percentage. Nevertheless it is a very good complement to the P/E ratio and could be useful to investors in growth stocks.
Related Terms
- Price/Earnings To Growth – PEG Ratio
- Price-Earnings Ratio (P/E ratio)
- Growth At A Reasonable Price
- Price/Sales Ratio
- Dividend Payout Ratio
- P Terms
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