investing guide

What Is The PEG Ratio In Relation To Stocks - Price Earnings Growth

So what is the PEG ratio in relation to stocks?

PEG stands for (price earnings growth), and is simply another way to evaluate the fundamentals of a company. Unlike a typical price-to-earnings ratio, a PEG takes into account a company's future annual earnings growth rate.

The chart below gives basic guidelines for the PEG. As always remember this is just a basic guideline. There are no guarantees that a low PEG will result in a positive stock pick. This is mainly because you are using earnings estimates; which basically means a best guess on the future earnings of the company which are not always very reliable.

As an example:

If a company has a P/E ratio of 20 and an annual earnings growth rate of 10 percent then the PEG would be 2.

PEG Ratio Guidelines

Less than 0.50 Undervalued
Between 0.50 and 1 Fair Value
Greater than 1 Overvalued