Using the Price-to-Earnings (P/E) Ratio and PEG Ratio to Assess a Stock
The price-to-earnings (P/E) ratio ranks among Wall Street’s most quoted statistics, revealing how much investors pay for each dollar of a company’s profits. But this popular metric only tells half the story. Suppose you spot a stock trading at just 10 times earnings while its industry peers trade at 20 or more—sounds like a bargain, right? Not necessarily. Savvy investors never rely on a single metric when evaluating stocks.
Enter the price-to-earnings-to-growth (PEG) ratio, which builds on the P/E foundation by factoring in the potential for future growth in earnings. Since understanding how to interpret these numbers can significantly improve your ability to identify truly promising stock prospects, we take you through both…
