What Is a Good PEG Ratio for a Stock? PEG Ratio Defined
The price/earnings-to-growth ratio, or PEG ratio, is a stock valuation metric that combines a company’s price-to-earnings (P/E) ratio with its earnings growth rate over a set period. Unlike the P/E ratio, which focuses only on current earnings, the PEG ratio provides a broader perspective by factoring in future growth expectations.
Investors and analysts widely use the PEG ratio to assess an investment’s overall performance and potential risk.
In theory, a PEG ratio of 1.0 indicates that the market value of the stock is aligned with its projected earnings growth. A ratio above 1.0 suggests the stock may be overvalued, while a ratio below 1.0 is generally considered favorable, indicating that the stock may be undervalued.
