Price/Earnings-to-Growth Ratio

The price/earnings-to-growth (PEG), ratio is an expansion of the P/E ratio. It allows for investors to see how a stock is valued based on its per-share price, earnings per share, and the stock’s earnings growth rate. This is done by dividing the standard P/E ratio by the EPS growth rate.

A higher PEG ratio may imply that the company is undervalued relative to its historical growth rate. The ratio also lets investors compare a company’s P/E ratio with its earnings growth rate against its peers.