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 taking into account the company's expected earnings growth rate. It provides a more complete picture than the P/E ratio alone.

2. How Does the Calculator Work?

The calculator uses the PEG ratio formula:

Where:

• \( P/E\ Ratio \) — Price-to-Earnings ratio (unitless)
• \( Annual\ EPS\ Growth \) — Expected annual earnings per share growth rate (%)

Explanation: A lower PEG ratio suggests a stock may be undervalued given its earnings growth expectations, while a higher PEG may indicate overvaluation.

3. Importance of PEG Ratio

Details: The PEG ratio is particularly useful for comparing companies with different growth rates. It helps investors identify potentially undervalued growth stocks.

4. Using the Calculator

Tips: Enter the P/E ratio (from financial statements) and the expected annual EPS growth rate (from analyst estimates). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PEG ratio?
A: Generally, a PEG ratio below 1 may indicate undervaluation, around 1 suggests fair valuation, and above 1 may indicate overvaluation.

Q2: How does PEG differ from P/E?
A: While P/E only considers current earnings, PEG incorporates expected earnings growth, making it more forward-looking.

Q3: What are the limitations of PEG ratio?
A: It relies on growth rate estimates which may be inaccurate. It's less useful for companies with negative earnings or inconsistent growth.

Q4: Should PEG be used alone for investment decisions?
A: No, it should be used alongside other financial metrics and qualitative analysis for comprehensive evaluation.

Q5: How should I interpret PEG for different industries?
A: PEG benchmarks vary by industry. Compare a company's PEG to industry averages rather than absolute values.