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PEG Ratio
Valuation & Fundamentals
The P/E ratio divided by the expected annual growth rate of earnings per share, expressed in percent.
It puts a fast grower's high P/E in the context of its growth. As a rough rule of thumb, a PEG around 1 is read as a fair price for the growth, but the denominator is a forecast, and if the forecast is wrong the ratio misleads.
Example
30
P/E
15%
Expected Annual Earnings Growth
2
PEG (30 / 15)
A company with a P/E of 30 and expected earnings growth of 15% a year has a PEG of 30 / 15 = 2.
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