Price to Earnings Growth Ratio PEG Definition & Meaning | Fundamental Analysis | CSIMarket
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Glossary

Price to Earnings Growth Ratio PEG

Fundamental Analysis

The Price to Earnings Growth Ratio (PEG) is a financial metric used in Fundamental Analysis to assess the value of a company*s stock relative to its earnings growth potential. The PEG ratio takes into account both the company*s price-to-earnings (P/E) ratio and its expected earnings growth rate.

The formula for calculating the PEG ratio is:

PEG Ratio = P/E Ratio / Earnings Growth Rate

A PEG ratio of 1 indicates that the stock is fairly valued relative to its earnings growth rate, while a ratio below 1 indicates undervaluation and a ratio above 1 indicates overvaluation. A high PEG ratio can indicate that a company*s stock is overpriced relative to its earnings growth potential, while a low PEG ratio can indicate that a stock may be undervalued.

Fundamental analysts use the PEG ratio to help identify potential investment opportunities. They often compare a company*s PEG ratio to its industry average or to the overall market, to determine whether the company is undervalued or overvalued. However, it is important to note that the PEG ratio is just one tool among many in a fundamental analyst*s toolkit and should not be used in isolation to make investment decisions.




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