PEG

 PEG

In finance, a PEG ratio (Price/Earnings-to-Growth ratio) is a tool used to find out if a stock's price is fair. It takes a company's normal P/E ratio and divides it by its expected profit growth rate. This helps investors see if a fast-growing company is a good deal or too expensive. [1, 2]

How the PEG Ratio Works

Formula: \(\text{PEG Ratio} = \frac{\text{P/E Ratio}}{\text{Earnings Growth Rate}}\)
P/E Ratio: The stock price divided by its earnings per share.
Growth Rate: How fast the company's profits are expected to grow. [1]

What the Numbers Mean

Under 1.0: The stock may be cheap (undervalued) for how fast it is growing.
Around 1.0: The stock price matches its growth rate.
Over 1.0: The stock may be expensive (overvalued) for its growth level

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