Price to Earnings Growth

RECENT NEWS
The Economic Times  Feb 2  Comment 
While the market was widely expecting fiscal deficit to be 3.3-3.5% of GDP, the government has chosen to peg it at 3.2%
The Hindu Business Line  Jan 31  Comment 
Revised estimates peg growth at highest levels since the 8.4% of FY11
Insurance Journal  Jan 18  Comment 
It’s too soon to peg a damage estimate from days of rainy weather that turned streets into rivers and living rooms into swimming pools throughout Northern California, state and county officials said. In San Benito County south of San Francisco, …
The Economic Times  Jan 9  Comment 
Even as NH operators peg losses at over Rs 1,000 cr, the govt is considering extending the toll collection period of the operators in their contracts.
MarketWatch  Dec 6  Comment 
Netflix Inc.’s competitors in content and video streaming haven’t done much in the way of knocking the streaming giant down a peg, which has prompted analysts at Evercore ISI, led by Ken Sena, to upgrade the stock to hold from sell.
GenEng News  Dec 1  Comment 
Duke University researchers have reconfigured a popular drug-delivery technology to evade immune responses that have halted some clinical trials. Polyethylene glycol (PEG) is a polymer commonly found in commercial products from toothpaste to...
The Economic Times  Nov 24  Comment 
Singh's fear is shared by many economists. Some peg the growth setback at a few tenths of a percentage point, while some have even slashed estimates by half.
newratings.com  Oct 31  Comment 
WASHINGTON (dpa-AFX) - Public Service Enterprise Group Inc. (PEG) on Monday said it is adjusted the upper end of its fiscal 2016 earnings guidance range, citing that strong third quarter results weren't sufficient to offset the lack of a...




 

This article is about the financial metric Price/Earnings To Growth. For the article on the company with ticker PEG, see Public Service Enterprise Group (PEG).

The PEG ratio equals the P/E Ratio divided by projected annual earnings-per-share growth

The PEG ratio (alternately PE/G, P/E to G, Price/Earnings to Growth, or Price to Earnings to Growth) is a valuation metric comparing the Price to Earnings ratio of a company to its projected annual Earnings Per Share growth.

A PEG ratio below 1 would indicate a company is undervalued relative to its share price, while a PEG greater than 1 would indicate an overpriced stock, as a high P/E should generally correlate with a market expectation of greater forthcoming earnings.

However, as PEG relies on projected EPS growth, its usefulness is tied directly to the accuracy of such projections.

It must be noted that PEG is only a rule of thumb and has no underlying mathematical basis for gauging what a company's share price truly "should" be. The ratio has been criticized for penalizing value stocks, which have lower earnings growth.

Examples

  • Company XYZ is trading at $20/share with an EPS of $1.00 for a P/E of 20. Analysts predict a 50% annual earnings increase over the next five years. The PEG ratio of XYZ is therefore .40, indicating the stock is undervalued by the market assuming the earnings projection is accurate.
  • Company ABC is trading at $50/share with an EPS of $1.00 for a P/E of 50. Analysts predict a 50% annual earnings increase over the next five years. The PEG ratio of ABC is therefore 1.00, indicating the stock is valued properly by the market assuming the earnings projection is accurate.
  • Company LMN is trading at $10/share with an EPS of $1.00 for a P/E of 10. Analysts predict a 5% annual earnings increase over the next five years. The PEG ratio of LMN is therefore 2.00, indicating the stock is overvalued by the market assuming the earnings projection is accurate.
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