The PEG ratio (Price/Earnings to Growth ratio) is calculated by taking the historic Price to Earnings Ratio (based on last year's diluted normalised Earnings) and dividing it by the consensus forecast EPS growth for the next year.
Unlike the Slater PEG Ratio or the Rolling PEG Ratio, this version does not use rolling PE ratio and growth rates, or incorporate the additional restriction that a companies must have 4 consecutive growth periods.
The PEG is a valuation metric used to measure the trade-off between a stock's price, its earning, and the expected growth of the company. It was popularised by Peter Lynch and Jim Slater. In general, the lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.
A PEG ratio of 1 is supposed to indicate that the stock is fairly priced. A ratio between 0.5 and less than 1 is considered good, meaning the stock may be undervalued given its growth profile. A ratio less than 0.5 is considered to be excellent.