PEG Ratio

See: prospective earnings growth ratio

* * *

   The price/earnings growth ratio is calculated by dividing a stock's prospective price/earnings ratio (PER) by the rate of estimated future growth in earnings per share (EPS). The higher the PEG ratio, the more the market has already valued future earnings growth.
   - A company with a PER of 15 and estimated growth rate of 15 percent would have a PEG of 1.0.
   - A company with a PER of 15 and an estimated growth rate of 10 percent would have a PEG of 1.5.
   The ratio was invented by 1960s markets expert Jim Slater, who used it as his main investing criterion. Consensus estimates are used to derive the PER and EPs used in the calculation.
   ► See also Consensus Estimates, P/E Ratio, EPS.

Financial and business terms. 2012.

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