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 company's 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
• \( Growth\ Rate \) — Expected earnings growth rate (in percentage)

Explanation: The ratio compares a company's valuation (P/E) to its expected earnings growth. A PEG of 1 suggests fair valuation, below 1 may indicate undervaluation, and above 1 may suggest overvaluation.

3. Importance of PEG Ratio

Details: The PEG ratio is widely used by investors to identify potentially undervalued stocks, especially for growth companies. It helps compare companies with different growth rates.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is a good PEG ratio?
A: Generally, a PEG below 1 may indicate undervaluation, while above 1 may suggest overvaluation. However, this varies by industry.

Q2: What growth rate should I use?
A: Use the expected annual earnings growth rate for the next 3-5 years. Analyst estimates or historical growth can be references.

Q3: How does PEG differ from P/E?
A: P/E only considers current earnings, while PEG accounts for future growth potential.

Q4: Are there limitations to PEG ratio?
A: Yes, it relies on growth rate estimates which may be inaccurate. It's less useful for non-growth or unpredictable companies.

Q5: Should PEG be used alone for investment decisions?
A: No, it should be one of several metrics considered along with fundamental analysis and other financial ratios.