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Price/Earnings-to-Growth (PEG) Ratio: Definition and How To Calculate


Published on 2025-03-10 18:41:12 - GOBankingRates
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  • See how the PEG ratio can help you spot undervalued stocks by factoring in growth potential, price, and earnings
  • making smarter investing easier.

The article from MSN Money discusses the Price/Earnings to Growth (PEG) ratio, a financial metric used to determine the value of a stock while considering the company's earnings growth. The PEG ratio is calculated by dividing the Price/Earnings (P/E) ratio by the company's expected earnings growth rate. This metric helps investors identify potentially undervalued stocks by providing a more nuanced view than the P/E ratio alone, which does not account for growth. A PEG ratio below 1 typically indicates that a stock might be undervalued, considering its growth prospects, whereas a ratio above 1 might suggest overvaluation. The article explains how to calculate the PEG ratio, its significance in investment decisions, and its limitations, such as the reliance on accurate earnings forecasts and the assumption that past growth rates will continue into the future. It also notes that while the PEG ratio is useful, it should not be the sole factor in investment decisions but rather one of many tools used in a comprehensive analysis.

Read the Full GOBankingRates Article at:
[ https://www.msn.com/en-us/money/savingandinvesting/price-earnings-to-growth-peg-ratio-definition-and-how-to-calculate/ar-AA1ADT14 ]