What is PEG Ratio?
The price-to-earnings growth (PEG) ratio is a financial ratio that compares a company's price-to-earnings (P/E) ratio to its earnings growth rate. It is calculated by dividing the P/E ratio by the company's expected earnings growth rate. The PEG ratio is used to determine whether a company's stock price is overvalued or undervalued based on its earnings growth prospects.
A PEG ratio of 1 is considered to indicate that a company's stock price is fairly valued, while a ratio below 1 suggests that the stock may be undervalued, and a ratio above 1 suggests that the stock may be overvalued. However, it is important to note that the PEG ratio is just one tool that can be used to evaluate a stock, and it should be considered in the context of other financial and non-financial factors.
The PEG ratio can be useful for comparing companies within the same industry, as it takes into account both the P/E ratio and the earnings growth rate. It can also be helpful for comparing companies with different P/E ratios, as it adjusts for differences in earnings growth.