See Also:
Financial Ratios
Price Earnings Ratio
Compound Annual Growth Rate (CAGR)
Price Earnings Growth Ratio Analysis
Price Earnings Growth Ratio DefinitionPrice earnings growth ratio (PEG ratio) expresses the relationship among current stock price, a company's earning per share and earnings expected future growth. Similar to the Price earnings ratio, the lower the PEG, the more undervalued the stock is.
Price Earnings Growth Ratio FormulaPrice to sales ratio = Price per earnings รท Annual EPS growth
Price Earnings Growth Ratio CalculationAnnual growth rate of earning for a company can be calculated by the average annual growth rate over the past 5 years excluding extraordinary items.
Example: a company has a P/E of 20 and is estimated its earnings will grow 20% annually. PEG ratio = 20 / 20 = 1
ApplicationsPEG is an indicator of a stock's potential market value. It is used to discover stocks with high growth potential while trading at a premium. In general, the value of 1 is considered a sign of good value. However, different industries trade at different PEGs. It is always better to compare a company to its peers group to get more useful information. The weakness of PEG ratio is that it may provide limited information since it relies heavily on earnings estimates.
ResourcesFor statistical information about industry financial ratios, please click the following website:
www.bizstats.com and
www.valueline.com.