Price Earnings To Growth Ratio
It's a valuation ratio that compares a stock's price/earnings (P/E) ratio to its expected EPS growth rate. It is calculated by dividing a stock's price/earnings divided by its projected year-over-year earnings growth rate.
PEG Ratio = Price Earnings/Annual EPS Growth
A lower PEG ratio is considered better as in such a case the investor would be paying less for each unit of earnings growth. A PEG ratio of one implies that the share price is higher than the expected earnings growth of the company. Ususally, Companies having a PEG ratio between 0 and 1 means the stock is undervalued. PEG ratio is often used in conjunction with other metrics like free cash-flow, debt – equity, dividend payout etc. However, PEG ratio is not much useful for evaluating companies without high growth. Often large, well-established companies may offer dependable dividend income, but little opportunity for growth.