What is the Price/Earnings to Growth (PEG) Ratio?
If you want to value a stock, you may want to learn more about the price/earnings-to-growth ratio (the PEG ratio).
It is a metric that takes into account a company's market price, earnings, and future growth prospects, providing investors a more complete picture of whether a stock is overvalued or undervalued.
The math behind the PEG ratio is straightforward. Just simply divides a company's P/E ratio by its expected rate of growth.
What does the PEG Ratio tell you?
This ratio also tells you how company A's stock stacks up against company B's stock. The lower the PEG ratio, the more the stock may be undervalued given its future earnings expectations.
In other words, the lower the value of your PEG ratio, the better the deal you're getting for the stock's future estimated earnings.
According to well-known investor Peter Lynch, a company's P/E and expected growth should be equal, which denotes a fairly valued company and supports a PEG ratio of 1.0. When a company's PEG exceeds 1.0, it's considered overvalued while a stock with a PEG of less than 1.0 is considered undervalued.
Adding a company's expected growth into the ratio helps to adjust the result for companies that may have a high growth rate and a high P/E ratio.
Read: How to value a stock with the P/E ratio？
Read: How to value a stock with the P/E ratio？
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo Official Account
Let’s learn how to trade with moomoo!
Check out my tutorial.
46KFollowers
140Following
18KVisitors
Follow
David W Clark : Thanks for the KISS METHOD of explaining P/E ratios as I need the "simple man" terms to understand, not the industry terms.
Captain Flint David W Clark: and not a damn thing wrong with that buddy! intelligence is the ability to acquire and apply knowledge and skills. being willing to learn is literally the definition. whenever I try to learn something new I put it in terms of something I'm already familiar with. especially business, since everything is business anymore
think about your hobbies, workplace, what you spend money on and how it is impacted by the "business of things" aka who is making the most money out of it and how that might change in the future. then apply that perspective to stocks. what will be a necessity in the future of humanity, what might be just a passing fad, and the time frame you want to be invested in a particular stock.
SamBull : Nice simple explanation
win 11118 : Nice
water cloud sky : Where can view the PEG ratio in moomoo?