The PEG ratio adjusts the PE ratio by a company's earnings growth rate. A PEG of 1.0 suggests the stock is fairly valued relative to growth; below 1.0 may indicate undervaluation.
PEG Ratio = PE Ratio / Annual EPS Growth Rate (%)
A stock with PE of 20x and 20% earnings growth has a PEG of 1.0. A stock with PE of 30x but only 10% growth has a PEG of 3.0 — potentially overvalued relative to its growth.
AllInvestView displays PE and Forward PE on stock detail pages. Use the PEG ratio to assess whether a high PE is justified by growth.
A PEG below 1.0 is generally considered undervalued, 1.0 is fairly valued, and above 1.0 may be overvalued relative to growth. However, high-quality companies often trade at PEGs above 1.0.
PE only looks at price vs earnings. PEG accounts for growth — a high PE might be justified if earnings are growing fast. PEG normalises valuation by growth rate.