Peg ratio is the ratio of a company’s P/E ratio and the growth rate at which the company’s earnings are growing. The PEG ratio is used to compare many different companies’ stocks.
The formula for calculating a PEG ratio is as follows:
PEG ratio = P/E ratio /Earnings growth rate
Assume an investor wants to invest in one of the three companies with the following stats:
|
|
Company A: |
Company B |
Company C |
|
Price per share |
25 |
56 |
75 |
|
EPS this year |
1.25 |
2.1 |
2.4 |
|
EPS last year |
1.06 |
1.96 |
1.8 |
|
|
|
|
|
|
P/E Ratio |
20.00 |
26.67 |
31.25 |
|
Earnings Growth |
17.92% |
7.14% |
33.33% |
|
PEG Ratio |
1.12 |
3.73 |
0.94 |
