PEG = (Price/Earnings)/Growth Price/Earning (P/E) = Share Price/Earnings per Share (EPS). Growth = Most recent EPS / EPS of the preceding year.
This key figure is used when assessing the share's valuation in relation to the company's profit growth and P/E valuation. Growth of earnings describes growth of 'Earnings per Share'.
A P/E ratio of 10 that has an annual profit growth of 10% has a PEG of 1.
A valuation of 1 is considered a fair value for growth, and anything above 1 is highly valued.
Things to keep in mind
- PEG is good to combine with PE. A high PE can be justified if the PEG is between 0 and 1.
- If earnings per share (EPS) decrease from the previous year, the PEG will be negative.
- A company that increases the number of shares reduces its EPS (dilution of shares). This can lead to a negative PEG, even if the company increases profits.