What is a stock's price-to-earnings-to-growth ratio (PEG ratio)?

by roderick_marquardt , in category: Stocks and Equities , a year ago

What is a stock's price-to-earnings-to-growth ratio (PEG ratio)?

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1 answer

by garret_hahn , a year ago


The price-to-earnings-to-growth ratio (PEG ratio) is a financial metric used to evaluate the valuation of a stock by taking into account its price-to-earnings (P/E) ratio and its projected earnings growth rate. It is calculated by dividing the P/E ratio by the annual earnings growth rate of the company.

The P/E ratio reflects how much investors are willing to pay for each dollar of earnings generated by the company. A higher P/E ratio generally indicates that investors expect higher earnings growth in the future.

The PEG ratio incorporates the earnings growth rate to provide a more comprehensive assessment of the stock's valuation. A PEG ratio of less than 1 typically suggests that the stock may be undervalued, while a ratio above 1 may indicate overvaluation. However, it's important to consider other factors and conduct a thorough analysis before making any investment decisions based solely on the PEG ratio.