The Price/Earnings-to-Growth Ratio (PEG Ratio), is used in fundamental analysis (Fundamental analysis) of a stock. It's calculated by dividing the P/E Ratio (Price-to-Earnings Ratio) by the company's growth. This provides a better picture of the company's value compared to just the P/E Ratio due to more data being included in the formula.

The growth is determined by comparing the previous time frame's EPS (Earnings Per Share) with the current EPS.

((current EPS)/(previous EPS)) - 1 = Growth Rate

For an example, we can use the two theoretical companies from the EPS zetel (Earnings Per Share):

Company 1

• Profits = $1,000,000

• Outstanding Shares = 6,535

• Previous EPS = $97.45

• Current EPS = $153.02

• EPS Growth Rate = 57%

• Current Stock Price = $13.37

• P/E Ratio = 0.09x

• PEG Ratio = 0.09/57 = 0.0016

Company 2

• Profits = $912,843,091,823

• Outstanding Shares = 98,237,498,273

• Previous EPS = $8.29

• Current EPS = $9.29

• EPS Growth Rate = 12%

• Current Stock Price = $48.06

• P/E Ratio = 5.17x

• PEG Ratio = 5.17/12 = 0.4308

Jerry Robinson recommends ( - Fundamentals 101) a PEG Ratio of less than 1.5.

Citations

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