The “PEG” Ratio
PEG stands for “Price to Earnings Growth”
The formulat: PEG Ratio = (P/E Ratio)/Projected Annual Growth in Earnings per Share
Important Notes
- What it means: The PEG ratio uses the basic format of P/E ratio for a numerator and then divides by the potential growth for EPS, which you’ll have to estimate.
- The two ratios might seem very similar bug PEG ratio is able to take into account future earnings growth.
- A general rule of thumb is that any PEG ratio below 1.0 is considered to be a good value.