1. What is the PEG Ratio?

The PEG (Price/Earnings to Growth) ratio is a valuation metric that adjusts the traditional P/E ratio by the expected earnings growth rate. It provides a more complete picture of a stock's valuation than P/E alone.

2. How Does the Calculator Work?

The calculator uses the PEG ratio formula:

Where:

• \( P/E \) — Price-to-Earnings ratio (unitless)
• \( Growth\ Rate \) — Expected earnings growth rate (percentage)

Explanation: The PEG ratio helps determine whether a stock is undervalued or overvalued by considering both its current earnings multiple and its expected growth.

3. Importance of PEG Ratio

Details: A PEG ratio of 1 suggests fair valuation. Below 1 may indicate undervaluation, while above 1 may suggest overvaluation. However, growth rates must be realistic and sustainable.

4. Using the Calculator

Tips: Enter the P/E ratio (must be > 0) and the expected earnings growth rate in percentage (must be > 0). The calculator will compute the PEG ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PEG ratio?
A: Generally, a PEG ratio below 1 is considered good, indicating potential undervaluation. However, this varies by industry and market conditions.

Q2: How accurate is the PEG ratio?
A: The PEG ratio depends heavily on the accuracy of the growth rate estimate. Forward-looking growth projections may not always materialize.

Q3: What time period should the growth rate cover?
A: Typically 3-5 years of expected earnings growth is used. Short-term growth rates may be too volatile.

Q4: Are there limitations to the PEG ratio?
A: Yes, it doesn't account for dividend payments, risk factors, or changes in growth rates over time.

Q5: Can PEG be used for all companies?
A: It's most useful for growing companies. For stable or declining companies, other metrics may be more appropriate.