Quick Definition

The Price/Earnings-to-Growth (PEG) Ratio is a stock valuation metric that measures the relationship between the price of a stock, its earnings per share, and its expected growth rate.

Formula

Examples

• 1A company with a P/E ratio of 15 and an expected earnings growth rate of 10% per year would have a PEG ratio of 1.5.
• 2If a company's P/E ratio is 20 and its earnings are expected to grow at 20% annually, the PEG ratio would be 1.0, indicating the stock may be fairly priced relative to its growth.
• 3A tech startup with a high P/E ratio of 30 but an expected growth rate of 40% would have a PEG ratio of 0.75, suggesting it might be undervalued.

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