The Price to Earnings Growth Ratio, or PEG Ratio, measures of the value of a company against its earnings and growth rate. It 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. This is measured as an average of the past 5 years' historical TTM earnings values and earnings are diluted and normalised.
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.
For a guide on how to use the PEG in your investing, check out this article.
|Real Estate Investors