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S&P 500   4,288.05
DOW   33,507.50
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Federal student loan payments are starting again. Here's what you need to know
Buy This Stock for AI Tidal Wave (not NVDA) (Ad)
Stock market today: Asian shares mixed as Japan business confidence rises and US shutdown is averted
Bank of Japan survey shows manufacturers optimistic about economy
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Facing increasing pressure from customers, some miners are switching to renewable energy
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66,000% upside on tiny biotech? (Ad)
The death toll in a collapsed gold mine in Zimbabwe expected to rise to 13, vice president says
The UAE holds an annual oil and gas conference just ahead of hosting UN COP28 climate talks in Dubai
S&P 500   4,288.05
DOW   33,507.50
QQQ   358.27
Federal student loan payments are starting again. Here's what you need to know
Buy This Stock for AI Tidal Wave (not NVDA) (Ad)
Stock market today: Asian shares mixed as Japan business confidence rises and US shutdown is averted
Bank of Japan survey shows manufacturers optimistic about economy
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Facing increasing pressure from customers, some miners are switching to renewable energy
Grant program for Black women entrepreneurs blocked by federal appeals court
66,000% upside on tiny biotech? (Ad)
The death toll in a collapsed gold mine in Zimbabwe expected to rise to 13, vice president says
The UAE holds an annual oil and gas conference just ahead of hosting UN COP28 climate talks in Dubai
S&P 500   4,288.05
DOW   33,507.50
QQQ   358.27
Federal student loan payments are starting again. Here's what you need to know
Buy This Stock for AI Tidal Wave (not NVDA) (Ad)
Stock market today: Asian shares mixed as Japan business confidence rises and US shutdown is averted
Bank of Japan survey shows manufacturers optimistic about economy
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Facing increasing pressure from customers, some miners are switching to renewable energy
Grant program for Black women entrepreneurs blocked by federal appeals court
66,000% upside on tiny biotech? (Ad)
The death toll in a collapsed gold mine in Zimbabwe expected to rise to 13, vice president says
The UAE holds an annual oil and gas conference just ahead of hosting UN COP28 climate talks in Dubai

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.

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CompanyCurrent PricePE RatioPEG RatioMarket CapVolumeAverage VolumeIndicator(s)
American Airlines Group Inc. stock logo
AAL
American Airlines Group
$12.81
-0.9%
3.430.08$8.37 billion34.00 million24.82 millionAnalyst Report
Short Interest ↑
United Airlines Holdings, Inc. stock logo
UAL
United Airlines
$42.30
0.0%
5.250.08$13.87 billion6.66 million7.17 millionAnalyst Report
Positive News
Office Properties Income Trust stock logo
OPI
Office Properties Income Trust
$4.10
-3.5%
18.640.09$199.22 million1.62 million992,550Short Interest ↑
Bread Financial Holdings, Inc. stock logo
BFH
Bread Financial
$34.20
-0.4%
3.410.09$1.72 billion336,100857,018Short Interest ↑
ING Groep stock logo
ING
ING Groep
$13.18
-0.3%
7.800.15$49.12 billion2.07 million3.38 million
PDC Energy, Inc. stock logo
PDCE
PDC Energy
$73.85
-0.3%
3.150.16$6.43 billion15.50 million1.35 millionAnalyst Report
News Coverage
Positive News
High Trading Volume
Devon Energy Co. stock logo
DVN
Devon Energy
$47.70
-2.3%
6.530.16$30.56 billion8.86 million8.97 millionShort Interest ↑
Scorpio Tankers Inc. stock logo
STNG
Scorpio Tankers
$54.12
-0.4%
3.770.18$2.95 billion1.46 million1.28 millionPositive News
Delta Air Lines, Inc. stock logo
DAL
Delta Air Lines
$37.00
+0.1%
7.970.20$23.81 billion7.99 million10.06 millionDividend Announcement
Analyst Report
Analyst Revision
Coterra Energy Inc. stock logo
CTRA
Coterra Energy
$27.05
-1.7%
6.780.22$20.42 billion5.00 million7.46 million
Corebridge Financial, Inc. stock logo
CRBG
Corebridge Financial
$19.75
-0.4%
6.100.22$12.56 billion2.33 million2.03 millionShort Interest ↑
HSBC Holdings plc stock logo
HSBC
HSBC
$39.46
-0.6%
6.650.24$158.12 billion1.38 million1.96 millionShort Interest ↓
Sylvamo Co. stock logo
SLVM
Sylvamo
$43.94
-0.4%
6.460.24$1.84 billion251,200386,626Short Interest ↑
Livent Co. stock logo
LTHM
Livent
$18.41
+1.7%
10.580.25$3.31 billion4.34 million3.08 millionGap Up
Patterson-UTI Energy, Inc. stock logo
PTEN
Patterson-UTI Energy
$13.84
-4.9%
8.650.25$2.88 billion7.24 million4.11 millionInsider Selling
StoneCo Ltd. stock logo
STNE
StoneCo
$10.67
+0.3%
21.780.25$3.33 billion3.41 million4.99 millionPositive News
EZCORP, Inc. stock logo
EZPW
EZCORP
$8.25
+2.4%
17.190.26$454.33 million1.05 million586,510Short Interest ↓
Positive News
Everest Group, Ltd. stock logo
EG
Everest Group
$371.67
-2.6%
12.380.26$16.13 billion339,700320,563
JD.com, Inc. stock logo
JD
JD.com
$29.13
+2.0%
15.170.27$40.68 billion9.44 million10.26 millionAnalyst Upgrade
Short Interest ↑
Gap Up
NatWest Group plc stock logo
NWG
NatWest Group
$5.83
-0.3%
6.210.27$25.38 billion1.39 million1.50 millionNegative News
The Lovesac Company stock logo
LOVE
Lovesac
$19.92
+0.7%
14.650.28$303.18 million177,800421,303Upcoming Earnings
NOV Inc. stock logo
NOV
NOV
$20.90
-1.6%
19.900.30$8.23 billion4.28 million4.30 millionAnalyst Revision
Graphic Packaging Holding stock logo
GPK
Graphic Packaging
$22.28
+0.1%
9.770.31$6.84 billion3.68 million3.64 millionShort Interest ↑
Pampa Energía S.A. stock logo
PAM
Pampa Energía
$37.36
-3.6%
3.440.31$2.04 billion105,700173,853Short Interest ↑
Copa Holdings, S.A. stock logo
CPA
Copa
$89.12
+0.8%
10.280.32$3.51 billion372,300515,359Analyst Revision
Banco Santander, S.A. stock logo
SAN
Banco Santander
$3.76
-0.8%
6.160.32$60.85 billion3.80 million3.87 million
Baidu, Inc. stock logo
BIDU
Baidu
$134.35
+1.4%
21.950.32$46.42 billion1.74 million2.83 millionGap Up
New Fortress Energy Inc. stock logo
NFE
New Fortress Energy
$32.78
+1.0%
17.440.33$6.72 billion1.92 million1.44 millionAnalyst Report
Oshkosh Co. stock logo
OSK
Oshkosh
$95.43
-0.4%
15.770.33$6.23 billion1.05 million548,365Analyst Revision
KB Financial Group Inc. stock logo
KB
KB Financial Group
$41.11
-0.8%
4.780.33$16.59 billion150,900209,984Short Interest ↓
Macy's, Inc. stock logo
M
Macy's
$11.61
+1.5%
4.300.34$3.18 billion11.12 million11.06 millionShort Interest ↑
O-I Glass, Inc. stock logo
OI
O-I Glass
$16.73
-1.9%
4.770.35$2.59 billion1.54 million1.11 millionShort Interest ↑
Lear Co. stock logo
LEA
Lear
$134.20
-0.4%
15.320.35$7.88 billion480,700584,593Short Interest ↓
Hudson Technologies, Inc. stock logo
HDSN
Hudson Technologies
$13.30
-0.9%
9.050.36$603.75 million291,800546,180Short Interest ↑
Asbury Automotive Group, Inc. stock logo
ABG
Asbury Automotive Group
$230.07
+0.4%
5.360.37$4.73 billion224,700215,308Positive News
Sociedad Química y Minera de Chile S.A. stock logo
SQM
Sociedad Química y Minera de Chile
$59.67
+2.5%
4.760.37$17.04 billion1.37 million1.62 millionPositive News
Gap Up
Phillips 66 stock logo
PSX
Phillips 66
$120.15
-2.6%
5.210.39$53.50 billion2.84 million3.37 millionPositive News
Qifu Technology, Inc. stock logo
QFIN
Qifu Technology
$15.36
+1.9%
4.540.39$2.48 billion595,100965,073Positive News
GEE Group Inc. stock logo
JOB
GEE Group
$0.59
+3.4%
7.400.39$66.95 million64,400367,439
Diamondback Energy, Inc. stock logo
FANG
Diamondback Energy
$154.88
-1.4%
8.040.40$27.70 billion1.85 million2.07 millionAnalyst Revision
Positive News
EOG Resources, Inc. stock logo
EOG
EOG Resources
$126.76
-2.1%
8.540.40$73.81 billion3.37 million3.36 millionShort Interest ↑
Chord Energy Co. stock logo
CHRD
Chord Energy
$162.07
-1.4%
3.960.43$6.73 billion458,800530,738Analyst Report
Short Interest ↑
News Coverage
Positive News
Urban Outfitters, Inc. stock logo
URBN
Urban Outfitters
$32.69
+1.3%
13.620.43$3.03 billion1.33 million1.64 million
KE Holdings Inc. stock logo
BEKE
KE
$15.52
+0.1%
25.870.43$19.45 billion7.70 million8.59 millionGap Up
General Motors stock logo
GM
General Motors
$32.97
-0.6%
4.600.44$45.36 billion13.59 million14.02 million
Hudson Global, Inc. stock logo
HSON
Hudson Global
$18.85
+0.5%
30.900.44$53.16 million3,2005,482Short Interest ↑
D.R. Horton, Inc. stock logo
DHI
D.R. Horton
$107.47
-1.3%
7.640.44$36.36 billion2.12 million2.94 millionPositive News
Terex Co. stock logo
TEX
Terex
$57.62
-0.8%
8.840.45$3.88 billion608,700874,295Analyst Revision
Positive News
Lloyds Banking Group plc stock logo
LYG
Lloyds Banking Group
$2.13
-0.5%
5.760.46$33.84 billion8.50 million10.18 millionShort Interest ↓
Positive News
Eldorado Gold Co. stock logo
EGO
Eldorado Gold
$8.91
-0.6%
111.390.46$1.82 billion728,5001.55 millionShort Interest ↑
Travel + Leisure Co. stock logo
TNL
Travel + Leisure
$36.73
-0.6%
8.050.47$2.72 billion542,200706,892Positive News
Array Technologies, Inc. stock logo
ARRY
Array Technologies
$22.19
-4.4%
43.510.47$3.35 billion5.48 million4.52 million
Harmony Biosciences Holdings, Inc. stock logo
HRMY
Harmony Biosciences
$32.77
-4.6%
10.020.47$1.97 billion530,500677,862Short Interest ↓
Perion Network Ltd. stock logo
PERI
Perion Network
$30.63
-0.1%
13.740.47$1.41 billion174,500729,082
ORIX Co. stock logo
IX
ORIX
$93.88
-1.8%
11.070.47$22.19 billion32,60024,397Short Interest ↑
News Coverage
Alaska Air Group, Inc. stock logo
ALK
Alaska Air Group
$37.08
+0.7%
30.150.48$4.72 billion1.52 million1.65 millionShort Interest ↓
Analyst Revision
Compañía Cervecerías Unidas S.A. stock logo
CCU
Compañía Cervecerías Unidas
$12.60
+1.6%
17.260.48$2.33 billion109,100133,097Short Interest ↑
News Coverage
Autoliv, Inc. stock logo
ALV
Autoliv
$96.48
-0.9%
21.540.49$8.24 billion670,000992,070Analyst Revision
Positive News
Exxon Mobil Co. stock logo
XOM
Exxon Mobil
$117.58
-1.6%
9.410.49$470.70 billion18.81 million15.98 millionAnalyst Revision
Magna International Inc. stock logo
MGA
Magna International
$53.61
-0.1%
16.550.50$15.35 billion803,7001.15 million
Skechers U.S.A., Inc. stock logo
SKX
Skechers U.S.A.
$48.95
+2.3%
16.160.51$7.58 billion2.33 million1.84 millionOptions Volume
Positive News
Gap Up
Ovintiv Inc. stock logo
OVV
Ovintiv
$47.57
-3.3%
3.590.51$13.03 billion3.24 million3.56 millionPositive News
Banco Bilbao Vizcaya Argentaria, S.A. stock logo
BBVA
Banco Bilbao Vizcaya Argentaria
$8.05
-0.1%
6.710.51$48.02 billion922,5001.42 millionDividend Cut
Short Interest ↓
CEMEX, S.A.B. de C.V. stock logo
CX
CEMEX
$6.50
-2.0%
10.830.52$9.42 billion4.86 million6.74 millionShort Interest ↓
Expedia Group, Inc. stock logo
EXPE
Expedia Group
$103.07
+0.5%
18.150.52$14.78 billion2.23 million2.56 millionShort Interest ↑
Shift4 Payments, Inc. stock logo
FOUR
Shift4 Payments
$55.37
+0.9%
32.760.52$4.54 billion1.01 million1.29 millionGap Up
Credicorp Ltd. stock logo
BAP
Credicorp
$127.97
-0.8%
8.320.53$10.18 billion229,300332,517Positive News
Toyota Motor Co. stock logo
TM
Toyota Motor
$179.75
-1.5%
11.100.53$243.53 billion222,200273,058
Marathon Oil Co. stock logo
MRO
Marathon Oil
$26.75
-2.4%
8.440.53$16.20 billion11.36 million11.02 millionInsider Selling
Short Interest ↑
Honda Motor Co., Ltd. stock logo
HMC
Honda Motor
$33.64
-3.4%
8.560.54$57.54 billion1.25 million1.05 millionPositive News
Gap Down
Veritiv Co. stock logo
VRTV
Veritiv
$168.90
+0.0%
7.600.54$2.29 billion110,900134,773Positive News
HF Sinclair Co. stock logo
DINO
HF Sinclair
$56.93
-2.9%
4.830.54$10.31 billion2.15 million2.33 millionPositive News
Organon & Co. stock logo
OGN
Organon & Co.
$17.36
+1.6%
5.880.55$4.44 billion3.24 million2.19 million
Select Medical Holdings Co. stock logo
SEM
Select Medical
$25.27
-1.9%
15.790.55$3.21 billion600,300523,097Positive News
Levi Strauss & Co. stock logo
LEVI
Levi Strauss & Co.
$13.58
+2.6%
12.350.55$5.39 billion2.03 million2.27 millionUpcoming Earnings
Short Interest ↑
Gap Up
Varex Imaging Co. stock logo
VREX
Varex Imaging
$18.79
-0.7%
26.470.55$759.12 million378,000327,725Positive News
Richardson Electronics, Ltd. stock logo
RELL
Richardson Electronics
$10.93
-2.5%
7.050.56$155.60 million63,700178,313Upcoming Earnings
Analyst Upgrade
Assertio Holdings, Inc. stock logo
ASRT
Assertio
$2.56
-3.0%
1.730.56$144.64 million1.34 million2.08 millionPositive News
Academy Sports and Outdoors, Inc. stock logo
ASO
Academy Sports and Outdoors
$47.27
+0.6%
6.960.56$3.52 billion1.56 million1.59 millionPositive News
Gap Up
Banco Bradesco S.A. stock logo
BBD
Banco Bradesco
$2.85
+0.7%
11.400.56$30.38 billion10.73 million27.02 millionShort Interest ↑
Western Alliance Bancorporation stock logo
WAL
Western Alliance Bancorporation
$45.97
+2.4%
5.520.56$5.03 billion1.94 million5.13 millionAnalyst Upgrade
Short Interest ↓
PVH Corp. stock logo
PVH
PVH
$76.51
+1.8%
26.020.56$4.62 billion464,200945,026Positive News
Gap Up
Albemarle Co. stock logo
ALB
Albemarle
$170.04
-1.4%
5.120.56$19.95 billion1.97 million1.93 millionShort Interest ↑
Southwest Airlines Co. stock logo
LUV
Southwest Airlines
$27.07
-0.6%
30.760.57$16.12 billion5.94 million7.14 millionAnalyst Report
CI Financial Corp. stock logo
CIXXF
CI Financial
$11.41
-0.2%
32.600.58$1.86 billion36,20030,489Gap Up
Voya Financial, Inc. stock logo
VOYA
Voya Financial
$66.45
-1.2%
11.800.58$7.03 billion592,8001.29 millionPositive News
Hilton Grand Vacations Inc. stock logo
HGV
Hilton Grand Vacations
$40.70
+0.6%
12.480.58$4.48 billion657,800811,743Short Interest ↑
Range Resources Co. stock logo
RRC
Range Resources
$32.41
-1.2%
4.720.59$7.80 billion1.85 million3.94 millionPositive News
Deluxe Co. stock logo
DLX
Deluxe
$18.89
-1.4%
15.610.59$823.98 million345,800227,555
Avnet, Inc. stock logo
AVT
Avnet
$48.19
-1.6%
5.830.59$4.41 billion586,000592,535Short Interest ↓
Positive News
Halozyme Therapeutics, Inc. stock logo
HALO
Halozyme Therapeutics
$38.20
-2.4%
22.340.59$5.04 billion914,4001.26 millionPositive News
Spirit Realty Capital, Inc. stock logo
SRC
Spirit Realty Capital
$33.53
+0.7%
16.440.60$4.74 billion1.51 million788,335Positive News
Ecovyst Inc. stock logo
ECVT
Ecovyst
$9.84
-1.6%
17.260.60$1.15 billion788,300897,917Positive News
Nomura Holdings, Inc. stock logo
NMR
Nomura
$4.02
-2.9%
14.890.60$12.07 billion9.73 million1.35 millionHigh Trading Volume
PulteGroup, Inc. stock logo
PHM
PulteGroup
$74.05
-1.0%
6.120.60$16.25 billion1.56 million2.68 millionPositive News
Tapestry, Inc. stock logo
TPR
Tapestry
$28.75
+2.1%
7.410.61$6.54 billion3.51 million3.46 millionShort Interest ↑
Gap Up
Perdoceo Education Co. stock logo
PRDO
Perdoceo Education
$17.10
-1.8%
9.240.61$1.12 billion1.12 million386,901High Trading Volume
Ryanair Holdings plc stock logo
RYAAY
Ryanair
$97.21
-1.1%
11.990.61$22.14 billion447,300422,879
MetLife, Inc. stock logo
MET
MetLife
$62.91
+0.0%
24.480.62$47.31 billion3.33 million4.84 million
Toll Brothers, Inc. stock logo
TOL
Toll Brothers
$73.96
-0.6%
5.320.63$7.95 billion1.66 million1.60 million
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.

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:

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.

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.

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:

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.

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.

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.

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:

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

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 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:

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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