The PEG ratio is a company’s price to earnings (P/E) ratio divided by the growth rate of its earnings over a specific future time period. Value and growth investors are more concerned about the future instead of the present.
The PEG ratio is calculated by taking the P/E and dividing it by the projected growth in earnings.
PEG = P/E / (projected growth in earnings)
For example, a stock with a P/E of 30 and projected earning growth next year of 20% would have a PEG of 1.5 (30 / 20 = 1.5).<< Back to Glossary Index