Price/Earnings-to-Growth (PEG) Ratio

The price/earnings-to-growth ratio is a metric used by analysts to determine whether companies are overvalued or undervalued relative to peers based on current share prices, current and future expected earnings. The PEG ratio takes companies’ price-earnings ratios (cf.) and compares them to expected earnings, thereby incorporating the notion of earnings sustainability. Future expected earnings are typically taken from consensus analysts’ estimates. Shares of companies with solid PEG ratios are likely to have good prospects to appreciate.