The PEG ratio (Price/Earnings to Growth ratio) is a stock valuation metric that improves upon the Price-to-Earnings (P/E) ratio by factoring in a company's expected earnings growth rate. It helps investors determine if a stock is overvalued or undervalued by considering not just the company's current earnings but also its future earnings potential.

We calculate the PEG ratio as follows:

Interpretation:

• PEG = 1: The stock is fairly valued, meaning its price is in line with its expected earnings growth.
• PEG > 1: The stock might be overvalued, as its price is high relative to its growth potential.
• PEG < 1: The stock could be undervalued, as it is priced lower than what would be expected from its growth.

The PEG ratio is especially useful for comparing companies within the same industry, where growth rates can vary widely. Unlike the P/E ratio, which only looks at current earnings, the PEG ratio incorporates future growth, making it a more comprehensive tool for long-term investing.