Series 79: Price/Earnings To Growth Ratio

Price/Earnings to Growth Ratio

Companies with high expected growth rates usually have higher P/E multiples than companies with lower expected growth rates, but this expectation is implicit rather than explicit. The price/earnings to growth (PEG) ratio explicitly factors in growth expectations and helps determine whether a stock is under- or overvalued given its expected growth rate. The PEG ratio usually incorporates the company’s anticipated rate of growth over a relatively long period, such as five years.

The PEG ratio equati