May, 2012 4:59 AM
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PEG ratio
The Price/Earnings to Growth (PEG) Ratio adds expected growth to the the Price/Earning ratio equation as follows:
PEG Ratio = P/E Ratio/Earnings per Share (EPS) Growth
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The EPS growth number is provided by the company and is their forecast of how much additional earnings they anticipate in the coming reporting period. Although nowhere near as widely used as the basic P/E Ratio, many financial experts feel the PEG gives a better measure of whether the share price is undervalued or overvalued.
A PEG under 1 means the shares have the potential to beat the market’s current valuation of the shares. High PEG Ratios are clear indications the shares are currently overvalued.
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