1. What is the PEG Ratio?

The PEG (Price/Earnings to Growth) ratio is a stock's price-to-earnings (P/E) ratio divided by its earnings growth rate. It provides a more complete picture of a stock's valuation than the P/E ratio alone by factoring in expected earnings growth.

2. How Does the Calculator Work?

The calculator uses the PEG ratio formula:

Where:

• \( P/E \) — Price-to-earnings ratio (unitless)
• \( Growth\% \) — Earnings growth rate percentage (%)

Interpretation: A PEG of 1 suggests fair valuation. Below 1 may indicate undervaluation, while above 1 may suggest overvaluation.

3. Importance of PEG Ratio

Details: The PEG ratio helps investors compare companies with different growth rates and identify potentially undervalued stocks considering their growth prospects.

4. Using the Calculator

Tips: Enter the P/E ratio (typically between 5-50) and expected earnings growth rate (as a percentage, typically between 5%-50%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PEG ratio?
A: Generally, PEG < 1 suggests undervaluation, PEG = 1 fair valuation, and PEG > 1 overvaluation, but this varies by industry.

Q2: How accurate is the PEG ratio?
A: It depends on the accuracy of the growth rate estimate. Future growth is often hard to predict precisely.

Q3: What time period should the growth rate cover?
A: Typically 3-5 year expected earnings growth rate, though some use historical growth rates.

Q4: Are there limitations to the PEG ratio?
A: Yes, it doesn't account for risk, competitive advantages, or changes in growth rates over time.

Q5: Should PEG be used alone for investment decisions?
A: No, it should be used with other financial metrics and qualitative analysis for comprehensive evaluation.