PEG Ratio

PEG ratio means the price-to-earnings ratio divided by the expected earnings growth rate. In simple terms, PEG ratio tries to compare a stock’s valuation with its growth. PEG ratio is important because a high P/E ratio may be more acceptable if a company is growing quickly. Investors use PEG ratio to judge whether growth justifies the valuation. For example, a stock with a P/E ratio of 30 and expected earnings growth of 15% has a PEG ratio of 2. PEG ratio is not a guaranteed measure of value. It depends on growth estimates, which can be uncertain or overly optimistic.