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Glossary · PSX term

PEG ratio.

The PEG ratio divides the P/E ratio by the company's earnings growth rate.

Definition

It adjusts the P/E for growth, so a high P/E may look reasonable if earnings are growing fast. A PEG around 1 is often viewed as fairly valued, though it depends on reliable growth estimates.

Worked example

A stock with a P/E of 12 and 12% expected earnings growth has a PEG of about 1.

Related on PSX Clarity

Term
Price-to-earnings ratio
Term
Earnings per share
Term
Forward P/E

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