S&P 500   3,585.62
DOW   28,725.51
QQQ   267.26
Why This Bear Market Is Not Even Close to Being Done…
In 20 years, this little-known trader didn’t have a single losing year… (Ad)
Denmark says Nord Stream 1 natural gas pipeline has also stopped leaking
Denmark says Nord Stream 1 pipelines stop leaking
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Brazil holds historic election with Lula against Bolsonaro
US shift away from coal hits tribal community in New Mexico
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Tesla sales bounce back in Q3 but fall short of estimates
Allies aim for risky Russian oil price cap as winter nears
S&P 500   3,585.62
DOW   28,725.51
QQQ   267.26
Why This Bear Market Is Not Even Close to Being Done…
In 20 years, this little-known trader didn’t have a single losing year… (Ad)
Denmark says Nord Stream 1 natural gas pipeline has also stopped leaking
Denmark says Nord Stream 1 pipelines stop leaking
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Brazil holds historic election with Lula against Bolsonaro
US shift away from coal hits tribal community in New Mexico
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Tesla sales bounce back in Q3 but fall short of estimates
Allies aim for risky Russian oil price cap as winter nears
S&P 500   3,585.62
DOW   28,725.51
QQQ   267.26
Why This Bear Market Is Not Even Close to Being Done…
In 20 years, this little-known trader didn’t have a single losing year… (Ad)
Denmark says Nord Stream 1 natural gas pipeline has also stopped leaking
Denmark says Nord Stream 1 pipelines stop leaking
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Brazil holds historic election with Lula against Bolsonaro
US shift away from coal hits tribal community in New Mexico
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Tesla sales bounce back in Q3 but fall short of estimates
Allies aim for risky Russian oil price cap as winter nears
S&P 500   3,585.62
DOW   28,725.51
QQQ   267.26
Why This Bear Market Is Not Even Close to Being Done…
In 20 years, this little-known trader didn’t have a single losing year… (Ad)
Denmark says Nord Stream 1 natural gas pipeline has also stopped leaking
Denmark says Nord Stream 1 pipelines stop leaking
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Brazil holds historic election with Lula against Bolsonaro
US shift away from coal hits tribal community in New Mexico
New Battery Tech to “Eat Lithium’s Lunch”? (Ad)
Tesla sales bounce back in Q3 but fall short of estimates
Allies aim for risky Russian oil price cap as winter nears

Low PE Growth Stocks

This page lists companies that have unusually low price-to-earnings growth ratios (PEG ratios). The PEG ratio is a valuation metric for determining the relative trade-off between a stock's price, its earnings per share (EPS) and its expected earnings growth. It is calculated by dividing a stock's PE ratio by the earnings growth rate. PEG ratios are particularly useful in comparing the valuation of two stocks that have significantly different earnings growth rates. How to interpret PEG (price-to-earnings growth) ratios.

MarketRank evaluates a company based on community opinion, dividend strength, institutional and insider ownership, earnings and valuation, and analysts forecasts.
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CompanyCurrent PricePE RatioPEG RatioMarket CapVolumeAverage VolumeIndicator(s)
Ecopetrol S.A. stock logo
EC
Ecopetrol
$8.93
-2.7%
6.070.04$18.87 billion1.24 million1.17 millionShort Interest ↑
Central Puerto S.A. stock logo
CEPU
Central Puerto
$4.40
+2.8%
6.670.08$644.21 million157,328203,801Short Interest ↑
News Coverage
Coterra Energy Inc. stock logo
CTRA
Coterra Energy
$26.12
+0.6%
7.260.10$20.66 billion7.83 million7.73 million
Ovintiv Inc. stock logo
OVV
Ovintiv
$46.00
+1.1%
10.320.10$11.58 billion4.50 million3.34 millionAnalyst Report
Options Volume
News Coverage
Bausch Health Companies Inc. stock logo
BHC
Bausch Health Companies
$6.89
-0.9%
57.420.11$2.51 billion5.19 million9.65 millionOptions Volume
Ally Financial Inc. stock logo
ALLY
Ally Financial
$27.83
-2.5%
4.010.12$8.80 billion5.21 million4.18 million
APA Co. stock logo
APA
APA
$34.19
-2.2%
3.850.12$11.41 billion7.71 million8.23 millionShort Interest ↓
Gap Down
Devon Energy Co. stock logo
DVN
Devon Energy
$60.13
-1.4%
7.630.12$39.92 billion9.69 million11.66 million
Barclays PLC stock logo
BCS
Barclays
$6.40
-1.2%
4.180.13$27.09 billion11.19 million9.47 millionShort Interest ↑
News Coverage
Gerdau S.A. stock logo
GGB
Gerdau
$4.52
+3.0%
2.470.14$7.55 billion10.26 million14.07 millionShort Interest ↓
Woori Financial Group Inc. stock logo
WF
Woori Financial Group
$22.32
-2.4%
2.280.15$5.55 billion78,80364,514News Coverage
Gap Down
Pampa Energía S.A. stock logo
PAM
Pampa Energía
$22.77
-1.3%
3.760.15$1.28 billion68,268116,845
Hudson Technologies, Inc. stock logo
HDSN
Hudson Technologies
$7.35
+4.6%
3.790.15$316.49 million1.82 million706,145Short Interest ↓
News Coverage
Positive News
High Trading Volume
Range Resources Co. stock logo
RRC
Range Resources
$25.26
+2.8%
13.020.16$6.46 billion4.57 million4.26 millionAnalyst Report
News Coverage
Continental Resources, Inc. stock logo
CLR
Continental Resources
$66.81
+0.3%
8.300.16$24.17 billion719,2761.26 millionShort Interest ↑
Lloyds Banking Group plc stock logo
LYG
Lloyds Banking Group
$1.79
-1.1%
5.590.17$30.88 billion22.84 million11.36 millionAnalyst Report
Short Interest ↓
News Coverage
High Trading Volume
Loma Negra Compañía Industrial Argentina Sociedad Anónima stock logo
LOMA
Loma Negra Compañía Industrial Argentina Sociedad Anónima
$6.23
+0.5%
7.790.17$725.90 million45,110145,146
Dream Finders Homes, Inc. stock logo
DFH
Dream Finders Homes
$10.60
+0.6%
5.990.17$977.68 million202,829159,378Positive News
Delek US Holdings, Inc. stock logo
DK
Delek US
$27.14
+0.7%
5.640.20$1.92 billion1.63 million1.34 millionShort Interest ↑
Discover Financial Services stock logo
DFS
Discover Financial Services
$90.92
-0.5%
5.920.20$24.97 billion1.58 million1.48 millionShort Interest ↑
Marathon Petroleum Co. stock logo
MPC
Marathon Petroleum
$99.33
+0.6%
6.710.20$49.21 billion5.01 million4.99 million
Asbury Automotive Group, Inc. stock logo
ABG
Asbury Automotive Group
$151.10
+2.8%
4.520.21$3.25 billion315,484192,855News Coverage
Dow Inc. stock logo
DOW
DOW
$43.93
-0.5%
4.920.21$31.71 billion5.87 million6.27 millionAnalyst Revision
Bancolombia S.A. stock logo
CIB
Bancolombia
$24.37
-1.7%
3.910.21$5.96 billion273,167266,352Short Interest ↓
MINISO Group Holding Limited stock logo
MNSO
MINISO Group
$5.49
+10.2%
17.710.21$1.58 billion1.46 million576,091News Coverage
Positive News
High Trading Volume
Avnet, Inc. stock logo
AVT
Avnet
$36.12
+0.4%
5.200.21$3.41 billion715,329942,617
Diamondback Energy, Inc. stock logo
FANG
Diamondback Energy
$120.46
-0.4%
5.630.21$20.97 billion2.00 million2.26 millionNews Coverage
Synchrony Financial stock logo
SYF
Synchrony Financial
$28.19
-2.3%
4.120.22$13.89 billion5.70 million4.41 millionNews Coverage
Group 1 Automotive, Inc. stock logo
GPI
Group 1 Automotive
$142.87
+0.9%
3.760.22$2.24 billion207,258212,031News Coverage
Foot Locker, Inc. stock logo
FL
Foot Locker
$31.13
-4.8%
6.350.23$3.05 billion4.87 million2.21 millionShort Interest ↑
News Coverage
Gap Down
High Trading Volume
Altice USA, Inc. stock logo
ATUS
Altice USA
$5.83
+2.3%
3.240.23$2.59 billion6.37 million5.64 millionAnalyst Report
News Coverage
NatWest Group plc stock logo
NWG
NatWest Group
$4.99
+2.0%
6.530.23$23.66 billion3.04 million1.72 millionShort Interest ↑
ArcBest Co. stock logo
ARCB
ArcBest
$72.73
-2.1%
6.310.23$1.82 billion179,380211,033Positive News
Uniti Group Inc. stock logo
UNIT
Uniti Group
$6.95
+3.7%
9.390.24$1.59 billion2.38 million1.62 million
Tenaris S.A. stock logo
TS
Tenaris
$25.84
-1.1%
8.280.24$15.43 billion2.88 million1.91 millionShort Interest ↑
News Coverage
Gap Down
Shinhan Financial Group Co., Ltd. stock logo
SHG
Shinhan Financial Group
$23.00
-3.2%
3.620.24$12.18 billion238,392206,326Short Interest ↑
News Coverage
EOG Resources, Inc. stock logo
EOG
EOG Resources
$111.73
-1.1%
11.460.24$66.21 billion3.33 million3.28 millionDividend Announcement
Analyst Upgrade
News Coverage
Eni S.p.A. stock logo
E
ENI
$21.14
-0.5%
2.740.25$38.29 billion329,294485,057News Coverage
ASE Technology Holding Co., Ltd. stock logo
ASX
ASE Technology
$4.99
-0.4%
4.190.25$10.92 billion9.14 million9.14 millionAnalyst Upgrade
Short Interest ↓
Lufax Holding Ltd stock logo
LU
Lufax
$2.54
+0.8%
2.620.25$5.76 billion10.29 million5.21 millionAnalyst Downgrade
Options Volume
News Coverage
Gap Up
Kinetik Holdings Inc. stock logo
KNTK
Kinetik
$32.58
-1.4%
124.720.25$4.38 billion366,534296,732Short Interest ↓
Positive News
The Lovesac Company stock logo
LOVE
Lovesac
$20.38
-0.8%
7.360.25$312.04 million332,805558,795
The Liberty SiriusXM Group stock logo
LSXMK
The Liberty SiriusXM Group
$37.71
+0.7%
13.090.26$8.19 billion1.01 million813,616Positive News
Bread Financial Holdings, Inc. stock logo
BFH
Bread Financial
$31.45
-2.0%
3.400.26$1.60 billion956,808716,759Short Interest ↑
News Coverage
Imperial Oil Limited stock logo
IMO
Imperial Oil
$43.27
-2.1%
7.000.27$27.46 billion330,287443,317Analyst Downgrade
News Coverage
Capital One Financial Co. stock logo
COF
Capital One Financial
$92.17
-1.6%
4.050.27$35.96 billion2.40 million2.62 million
Veritiv Co. stock logo
VRTV
Veritiv
$97.77
-0.1%
5.600.27$1.37 billion231,606123,824
The Carlyle Group Inc. stock logo
CG
The Carlyle Group
$25.84
-1.5%
4.720.27$9.48 billion3.00 million2.56 millionNews Coverage
Commercial Vehicle Group, Inc. stock logo
CVGI
Commercial Vehicle Group
$4.50
+2.0%
8.820.27$147.32 million216,314116,558Short Interest ↓
News Coverage
Braskem S.A. stock logo
BAK
Braskem
$9.74
+0.7%
3.150.27$4.37 billion192,259207,969Short Interest ↓
News Coverage
Tronox Holdings plc stock logo
TROX
Tronox
$12.25
+3.5%
3.320.27$1.83 billion2.10 million1.50 millionAnalyst Report
Suzano S.A. stock logo
SUZ
Suzano
$8.25
+3.1%
4.970.28$10.89 billion1.94 million1.62 millionShort Interest ↑
News Coverage
Cumulus Media Inc. stock logo
CMLS
Cumulus Media
$7.03
2.770.28$133.73 million83,42385,544Positive News
G-III Apparel Group, Ltd. stock logo
GIII
G-III Apparel Group
$14.95
-0.8%
3.320.28$715.62 million761,987937,982Short Interest ↓
BorgWarner Inc. stock logo
BWA
BorgWarner
$31.40
-0.9%
11.670.28$7.50 billion2.48 million1.80 millionAnalyst Report
Short Interest ↓
Lincoln National Co. stock logo
LNC
Lincoln National
$43.91
-1.3%
9.150.29$7.58 billion2.10 million1.70 millionShort Interest ↓
News Coverage
Exxon Mobil Co. stock logo
XOM
Exxon Mobil
$87.31
-1.5%
9.550.29$369.59 billion21.36 million18.68 millionNews Coverage
Townsquare Media, Inc. stock logo
TSQ
Townsquare Media
$7.26
-5.3%
6.210.30$130.82 million17,10028,335
ACCO Brands Co. stock logo
ACCO
ACCO Brands
$4.90
-1.8%
4.340.30$470.36 million550,288704,637News Coverage
The GEO Group, Inc. stock logo
GEO
The GEO Group
$7.70
+0.5%
16.740.31$950.53 million1.70 million1.81 million
Modine Manufacturing stock logo
MOD
Modine Manufacturing
$12.94
-0.8%
6.990.31$679.91 million252,689329,786News Coverage
Positive News
Pilgrim's Pride Co. stock logo
PPC
Pilgrim's Pride
$23.02
-0.9%
7.550.31$5.55 billion655,898841,933Short Interest ↑
News Coverage
AdaptHealth Corp. stock logo
AHCO
AdaptHealth
$18.78
-1.7%
36.120.32$2.57 billion1.12 million1.48 millionInsider Selling
Short Interest ↓
News Coverage
Macy's, Inc. stock logo
M
Macy's
$15.67
-1.1%
3.030.32$4.29 billion15.51 million10.74 millionShort Interest ↓
Gray Television, Inc. stock logo
GTN
Gray Television
$14.32
-2.5%
11.190.33$1.37 billion730,586526,108News Coverage
Marathon Oil Co. stock logo
MRO
Marathon Oil
$22.58
-1.0%
5.350.33$16.14 billion17.06 million13.32 million
WW International, Inc. stock logo
WW
WW International
$3.93
-1.3%
4.470.33$280.13 million1.59 million1.39 millionNews Coverage
PerkinElmer, Inc. stock logo
PKI
PerkinElmer
$120.33
-0.8%
22.530.33$15.32 billion831,995725,713
HF Sinclair Co. stock logo
DINO
HF Sinclair
$53.84
+0.6%
6.900.33$11.61 billion2.04 million1.86 millionNews Coverage
ORIX Co. stock logo
IX
ORIX
$70.67
-1.6%
6.390.34$17.29 billion67,84345,600Short Interest ↓
EZCORP, Inc. stock logo
EZPW
EZCORP
$7.71
-2.4%
12.640.34$447.58 million763,598262,840News Coverage
Positive News
High Trading Volume
ChampionX Co. stock logo
CHX
ChampionX
$19.57
+1.5%
24.770.34$3.91 billion2.04 million1.83 millionShort Interest ↑
News Coverage
Graphic Packaging Holding stock logo
GPK
Graphic Packaging
$19.74
+0.2%
21.230.36$6.07 billion3.16 million2.60 millionNews Coverage
Freeport-McMoRan Inc. stock logo
FCX
Freeport-McMoRan
$27.33
-3.0%
8.310.36$40.26 billion16.11 million16.60 millionOptions Volume
KB Financial Group Inc. stock logo
KB
KB Financial Group
$30.14
-2.1%
3.130.36$12.59 billion354,711391,932Short Interest ↑
News Coverage
ConocoPhillips stock logo
COP
ConocoPhillips
$102.34
-1.3%
8.450.36$134.08 billion7.17 million7.33 millionShort Interest ↓
Herc Holdings Inc. stock logo
HRI
Herc
$103.88
-0.6%
11.500.37$3.13 billion319,276148,387News Coverage
High Trading Volume
Credicorp Ltd. stock logo
BAP
Credicorp
$122.80
+0.2%
10.530.37$9.75 billion287,361293,109News Coverage
Occidental Petroleum Co. stock logo
OXY
Occidental Petroleum
$61.45
-1.1%
6.060.37$58.21 billion19.49 million24.37 millionInsider Buying
News Coverage
Gap Down
Apple Hospitality REIT, Inc. stock logo
APLE
Apple Hospitality REIT
$14.06
-0.6%
24.670.37$3.24 billion2.92 million1.59 millionShort Interest ↑
GreenTree Hospitality Group Ltd. stock logo
GHG
GreenTree Hospitality Group
$3.39
-1.2%
10.940.37$353.46 million2,70145,225Short Interest ↓
Positive News
Charter Communications, Inc. stock logo
CHTR
Charter Communications
$303.35
-3.0%
9.740.37$50.22 billion2.25 million1.51 millionAnalyst Report
News Coverage
Nomura Holdings, Inc. stock logo
NMR
Nomura
$3.30
+0.3%
12.220.38$9.93 billion1.35 million2.30 millionShort Interest ↓
Canada Goose Holdings Inc. stock logo
GOOS
Canada Goose
$15.24
-4.9%
23.450.38$1.69 billion1.87 million1.41 millionGap Down
KB Home stock logo
KBH
KB Home
$25.92
-0.3%
3.030.38$2.27 billion1.74 million2.01 million
HSBC Holdings plc stock logo
HSBC
HSBC
$26.07
+0.2%
7.780.38$105.75 billion3.62 million3.16 millionAnalyst Report
Viatris Inc. stock logo
VTRS
Viatris
$8.52
-0.9%
13.520.38$10.43 billion8.20 million10.11 million
Patrick Industries, Inc. stock logo
PATK
Patrick Industries
$43.84
-0.4%
3.040.39$1.01 billion219,753210,068Analyst Downgrade
News Coverage
Northern Oil and Gas, Inc. stock logo
NOG
Northern Oil and Gas
$27.41
+1.6%
13.180.39$2.13 billion1.23 million824,944News Coverage
Albemarle Co. stock logo
ALB
Albemarle
$264.44
-0.4%
119.120.39$31.09 billion1.08 million1.30 millionAnalyst Report
Short Interest ↑
Analyst Revision
News Coverage
KeyCorp stock logo
KEY
KeyCorp
$16.02
-0.1%
7.030.40$14.95 billion9.12 million10.55 millionAnalyst Report
Analyst Revision
News Coverage
Celestica Inc. stock logo
CLS
Celestica
$8.41
-0.7%
8.410.40$1.04 billion411,360323,870Short Interest ↑
Franchise Group, Inc. stock logo
FRG
Franchise Group
$24.30
+1.2%
2.800.40$969.49 million798,841482,800Short Interest ↑
News Coverage
Banco Bradesco S.A. stock logo
BBD
Banco Bradesco
$3.68
-0.5%
8.900.41$39.44 billion23.88 million24.87 millionAnalyst Report
News Coverage
The Chemours Company stock logo
CC
Chemours
$24.65
+1.9%
4.600.41$3.75 billion2.14 million1.96 millionAnalyst Report
Short Interest ↑
Lear Co. stock logo
LEA
Lear
$119.69
-2.0%
63.660.41$7.25 billion566,943615,790Analyst Report
Phillips 66 stock logo
PSX
Phillips 66
$80.72
+0.1%
6.950.41$38.79 billion3.26 million3.47 million
TotalEnergies SE stock logo
TTE
TotalEnergies
$46.52
-0.3%
5.900.42$121.60 billion2.47 million2.56 millionAnalyst Report
Arcos Dorados Holdings Inc. stock logo
ARCO
Arcos Dorados
$7.29
+3.3%
13.750.42$1.49 billion1.07 million732,035Analyst Report
Assertio Holdings, Inc. stock logo
ASRT
Assertio
$2.27
+4.6%
4.200.42$104.55 million672,709749,761Short Interest ↑
What is the price-to-earnings growth (PEG) ratio?

The PEG Ratio takes into a stock’s present and future earnings outlook

One of the key ratios that investors use to decide if a stock is correctly valued is the price-to-earnings (P/E) ratio. In simple terms, the P/E ratio tells an investor how much they are paying to purchase $1 or a company’s earnings.

However, while the P/E ratio can show a company as a good investment, it doesn’t take into account future earnings. This is why many investors have come to supplement the P/E ratio with another measurement tool the price-to-earnings growth (or PEG) ratio. This ratio takes into account a company’s future earnings growth to give a more accurate picture of a stock’s valuation.

In this article we’ll define the PEG ratio and provide examples, we’ll also review how to interpret the PEG ratio and review some of the limitations of this ratio. But first, we’ll review what the P/E ratio is and the limitations that may make the PEG ratio a more relevant option.

Understanding the Price-to-Earnings (P/E) Ratio

The P/E ratio is a measurement of how much an investor is paying to buy $1 of a company’s earnings or profit. To calculate the P/E Ratio you simply divide the stock price by the earnings per share:

P/E Ratio = Stock Price/Earnings per share (EPS)

For example, if a company is reporting earnings of $3 per share and their stock is selling for $30 per share, the P/E ratio is 10 ($30 per share/$3 per share).

Legendary investment manager Peter Lynch once wrote “The P/E ratio of any company that’s fairly priced will equal its growth rate”. Certainly, a stock’s price-to-earnings ratio (P/E ratio) is widely considered a reasonably accurate measure of a company’s valuation, and can sometimes be used as a way of comparing one company against another.

While there is no “standard” P/E Ratio for all stocks and sectors, investors can generally find that different industries will have different “standard” P/E ratios. For example, it’s not uncommon to find technology companies with a P/E ratio of 20 or higher. This is due in part to the fact that these companies include many growth stocks that historically increase share price and EPS at a faster rate than the broader market.

By contrast, financial services companies might have P/E ratios in the low teens. For investors this means rather than one-size-fits-all, the objective is to ensure that two companies in the same industry have a similar P/E ratio.

However, if all companies in a particular sector begin to have P/E ratios that are abnormally high or low (based on their historical pattern) it may indicate that the stock is overvalued or undervalued. For example, in the months leading up to the real estate crash of 2007, the P/E ratio of real estate stocks soared. A similar phenomenon occurred before the tech stock crash in the early 2000s.

What is the Primary Limitation of the P/E Ratio?

The primary limitation of P/E ratio is that it is limited to a moment in time. It gives you an accurate assessment of where one company compares to another at that moment. However, to get a more accurate view of whether a stock is overvalued or undervalued requires knowledge of the anticipated growth rate between the two companies.

For example, let’s use a hypothetical example. Let’s say company ABC has a P/E of 30 and an anticipated growth rate of 50%. Then say that company XYZ has a P/E of 20, and an anticipated growth rate of 5%. Just by looking at the P/E ratio, company ABC looks undervalued. However, if company XYZ is in a mature phase of its business, then company ABC is a better choice for growth-oriented investors.

What is the Price-to-Earnings Growth (PEG) Ratio?

This limitation spawned the need for a new metric. Specifically the ratio of the P/E to growth (or PEG). The formula for PEG is as follows:

P/E Ratio/Earnings per share (EPS) growth Rate

If you were to put this formula into a sentence, it would say that the PEG ratio is a calculation that helps investors determine whether a stock’s price is overvalued or undervalued by not only looking at their current earnings, but also looking at their expected future earnings growth.

To test Lynch’s theory, PEG would imply that if a company had a “Fair P/E ratio” than it should have a PEG of around 1.

If:         Fair P/E Ratio = EPS Growth Rate

Than:    P/E Ratio/EPS Growth Rate = 1

PEG is particularly important for certain growth stocks that may historically have periods of higher and lower growth when compared to the overall stock market. These stocks may have a forecasted EPS growth rate that supports a P/E ratio that would make a stock seem overvalued. Likewise, a PEG ratio for a mature company may show that what many investors consider to be a fair P/E ratio is actually indicative of a stock that is overvalued.

However, like other ratios, the PEG ratio is most helpful when comparing a stock price to others in its industry or sector. Some sectors, such as technology, may have much higher future earnings growth.

How to Interpret the PEG Ratio

The accepted rule among investors is that a PEG of greater than 1 indicates a stock price that is too high based on expected earnings growth. A PEG of less than 1 indicates a stock that is undervalued based on projected earnings growth.

While it’s true that the P/E ratio is a multiple and the PEG is a percent, it’s important to focus on the true objective and that is to determine whether a stock is properly valued. To that end, many investors believe the PEG is more accurate than simply looking at a company’s P/E ratio when determining proper valuation.

For example, by definition, a high P/E ratio typically signals to investors that a stock is overvalued. However, if the company has high growth estimates, than calculating the PEG can show a very different picture, and one that could suggest the stock is still a buy. In our earlier example, investors may consider a company with a P/E ratio of 30 to be overbought. But if the company is forecasting a growth rate of 50% than its PEG ratio tells a different story.

PEG = P/E Ratio/Growth Rate, the company would have a PEG ratio of 0.6

PEG = 30/50 = 0.6

In this case, the PEG number suggests one of two things. One that analysts are setting their expectations too low. And second that analysts are overvaluing the stock’s growth. In either case, the ratio suggests the stock has room to grow.

The opposite is also true. If a company has a P/E range of 8 which may be lower than expected or lower than others in its sector, the assumption could be that the stock is undervalued. However, a closer look may indicate that the company is expecting only about 5% for the growth for the year. While that growth rate is certainly not poor when you perform the PEG calculation you come up with:

PEG = 8/5 = 1.6

In this case, the company may very well have a difficult time increasing their share price above its current level.

What Are the Limitations of the PEG Ratio?

One of the basic limitations of PEG is that even though it does forecast future growth it still only measures that future growth in the context of that moment. It also does not provide a context for the growth number. For example, that growth could be due to a one-time event. Also, when compared with other analysis tools such as a discounted cash flow analysis, the PEG ration tends to undervalue the companies with the highest growth rates.

Another limitation of the PEG ratio is how future growth is calculated. If the company uses projected growth, it may significantly different (and easier to manipulate) than if they were to use historical data.

However, these limitations make the PEG ratio no different than other ratios or metrics. Every investor needs to use more than one measurement tool to get a complete picture of a stock’s valuation. For example, looking at a company’s balance sheet over the course of several quarters can give investors a better look at trends having to do with their revenue growth or free cash flow.

The Final Word on the PEG ratio

The P/E growth ratio (or PEG) was developed and is used as a refinement of the standard P/E ratio that is used in fundamental analysis. The PEG ratio factors in a company’s forecasted growth potential either using historical data (meaning its backward looking) or using projected growth numbers (forward-looking). The formula for the PEG ratio is as follows:

PEG Ratio = P/E Ratio/Growth rate

Just like a P/E ratio, there is no “standard” for what constitutes a good PEG ratio. Some industries will have a “typical” PEG ratio that would seem high or low for another sector. In general, however, a P/E ratio that is around 1 is said to indicate a fair valuation for a stock. So for example, a stock that has a P/E ratio of 20 with a forecasted growth rate 20 percent would have a PEG ratio of 1.

A PEG ratio above 1 will typically indicate an overvalued stock and a PEG ratio of less than 1 will typically be an indication that a stock is undervalued.

Like any fundamental analysis ratio, the PEG has limitations, the largest being that it is only predictive of the current time period. For example, a company may project 20% growth for the following year, but even if it achieves that growth there is no indication that it will continue to grow at that pace. Nor does the PEG ratio provide a context for the growth figure. Also, the growth projections used for the PEG ratio can be determined using past growth data. While accurate in the sense that it is based on an actual, not projected, number it can be higher or lower than the rate of growth the company is currently experiencing. Despite these limitations, the PEG ratio is still considered to be a good baseline test of valuation.


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