Price to Earnings Growth

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The Economist  2 hrs ago  Comment 
THE year is only a few weeks old but already there has been turmoil in the foreign-exchange markets. On January 28th Singapore eased monetary policy, allowing its currency to fall to its lowest level against the dollar since 2010. The Swiss have...
Telecom Ramblings  Jan 27  Comment 
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Benzinga  Jan 26  Comment 
Below are the top stocks in the utilities sector in terms of PEG ratio. Calpine Corp. (NYSE: CPN) has a PEG ratio of 0.33. Calpine's trailing-twelve-month ROE is 18.60%. Korea Electric Power Corp. (NYSE: KEP) has a PEG ratio of 0.48. Korea...
Motley Fool  Jan 24  Comment 
The PEG ratio is a temptingly simple valuation tool. But does it really work? Read all about it.
Wall Street Journal  Jan 23  Comment 
Some investors seem to think the Hong Kong dollar is vulnerable to a Swiss-franc like strengthening. They are wasting their dollars betting on it.
Benzinga  Jan 23  Comment 
Below are the top mid-cap chemicals-major diversified stocks on the NYSE and the NASDAQ in terms of PEG ratio. Celanese Corporation (NYSE: CE) has a PEG ratio of 0.73. Celanese's trailing-twelve-month revenue is $6.86 billion. Braskem S.A....
Benzinga  Jan 22  Comment 
Below are the top mid-cap business software & services stocks on the NYSE and the NASDAQ in terms of PEG ratio. DST Systems Inc. (NYSE: DST) has a PEG ratio of 0.76. DST Systems' trailing-twelve-month revenue is $2.71 billion. Iron Mountain...
Euromoney  Jan 21  Comment 
The Hong Kong dollar’s peg to the US dollar has, once again, come under scrutiny after the Swiss National Bank’s (SNB) removal of its currency’s floor roiled currency markets globally.




 

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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