Price to Earnings Growth

RECENT NEWS
Forbes  Jul 26  Comment 
Looking at options trading activity among components of the S&P 500 index, there is noteworthy activity today in Public Service Enterprise Group Inc (NYSE: PEG), where a total volume of 12,012 contracts has been traded thus far today, a contract...
Motley Fool  Jul 20  Comment 
This valuation metric takes both growth and dividends into account.
Benzinga  Jul 18  Comment 
Perhaps the most often cited measure of whether a company's stock is expensive, the price-to-earnings or "P/E" ratio is calculated by dividing a stock's price by its earnings per share ("EPS") over the most recent twelve months, also called the...
newratings.com  Jun 24  Comment 
VIENNA (dpa-AFX) - The Swiss franc climbed strongly against the euro after the U.K. unexpectedly decided to leave the EU. The currency, perceived a safe-haven, rose the most against the euro since the Swiss National Bank removed the 1.20 per...
Motley Fool  Jun 22  Comment 
Are these inexpensive Dow Jones Industrial Average stocks worth buying?
Wall Street Journal  Jun 20  Comment 
Nigeria’s currency plummeted more than 40% against the dollar on Monday, the latest sign that low crude prices continue to disrupt the economies of some major oil-producing nations.
Wall Street Journal  Jun 15  Comment 
Nigeria’s central bank abandoned a currency peg that economists and businesses long blamed for exacerbating a slide toward recession in Africa’s largest economy.




 

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.
Please install Flash Player to view this chart.
Please install Flash Player to view this chart.
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki