The price/earnings to growth (PEG) ratio is used to determine a stock’s value while taking the company’s earnings growth into account. Or, the PEG is used to determine if a stock has a low value competed to future growth. The lower the PEG ratio, the more the stock may be undervalued given its earnings performance.
- Generally a PEG of less than 1 is considered an undervalued stock.
- While a higher PEG indicates that the stock is overvalued
PEG Ratio = P/E ratio/Annual EPS Growth