The PEG ratio (Price/Earnings to Growth ratio) is a valuation metric used to measure the trade-off between a stock's price, its earnings per share (EPS), and the expected growth of the company. This figure is calculated using the current rolling PE ratio and dividing it by the 12 month forward rolling eps growth rate.
This is distinct from the historic PEG and the Slater PEG which use slightly different definitions.
A PEG ratio of 1 is supposed to indicate that the stock is fairly priced. A ratio between .5 and less than 1 is considered good, meaning the stock may be undervalued given its growth expectations. A ratio less than .5 is considered to be excellent. This metric was popularised by Peter Lynch and Jim Slater. It should be noted that Slater's PEG uses the forward P/E Ratio as well as the forward growth rate. As a result it double counts the growth rate and thus understates the PEG Ratio. While popular in the UK the super low PEGs that result using Slater's PEG can be misleading. Our preference is to use the standard Rolling PEG.
For full detail on the PEG please read more at this link.