Price to Earnings Growth

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Motley Fool  Jul 9  Comment 
A good screener can be a great place to find cheap stocks.
Reuters  Jun 18  Comment 
Qatar's riyal is being quoted weaker than its peg against the U.S. dollar as Doha grapples with a diplomatic crisis, but that is the result of poor liquidity in the currency market rather than a serious threat to the peg, bankers in the region say.
Motley Fool  Jun 12  Comment 
A good screener can do half the work for you.
TechCrunch  Jun 9  Comment 
 Home improvement platform Houzz continues to grow, and is in process of raising another huge round of funding. The company confirms that it is raising $400 million in new financing, at a valuation that multiple reports peg at around $4 billion....
Channel News Asia  Jun 9  Comment 
Qatar could defend its currency for years in the face of economic sanctions by other Gulf states, the country's balance sheet suggests, so the riyal's peg to the U.S. dollar is unlikely to fall victim to the region’s diplomatic crisis.
The Economic Times  Jun 9  Comment 
Measuring tools peg likely Nifty target for the near term at 10,000-10,200 levels.
Financial Times  Jun 6  Comment 
Diplomatic crisis in Middle East puts pressure on riyal’s peg to the US dollar




 

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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