PEG ratio

A valuation ratio that compares a firm’s price-earnings ratio to its earnings growth rate. The PEG ratio is a popular technique for evaluating firms that are growing at significantly different rates or at high absolute rates. The PEG ratio can provide you with an idea of whether a high-growth company is worth its high price-earnings valuation. As a common rule of thumb, ratios below 1.00 indicate that a stock may be undervalued, while stocks with ratios above 1.50 may be overvalued. The PEG ratio can be created using either the historical or expected growth rate. For dividend-paying stocks, a dividend-adjusted PEG ratio can be used to level the playing field between these stocks and non-dividend-paying stocks.