Explain the PEG ratio?

Finance
#1

This is an acronym for Price/Earnings to Growth Ratio, which takes the P/E ratio and factors for how quickly the company’s EPS will increase.
A stock with a high PEG ratio is one that is quickly expanding. The P/E and PEG ratios of a finely valued company will be the same.

So, if a firm’s P/E ratio is 20 and its PEG ratio is likewise 20, some may say that the stock is overpriced since another company with the same EPS has a lower P/E ratio, but because the PEG rate is 20, it also implies that it is expanding quickly.

#2

PEG Ratio may be used to express the extent to which price that an investor is willing to pay or a company, is justified by the growth in earnings. The assumption with high P/E stocks is that investors are willing to buy at a high price because they believe that the stock has significant growth potential. The PEG ratio helps investors determine the degree of reliability of that growth assumption.

Interpretation: “If P/E ratio of any company that is fairly priced, will be equal to growth rate”

  • If the PEG ratio is 1, it is fairly priced.
  • If the PEG ratio is below 1, it is undervalued.
  • If the PEG ratio is above 1, it is overvalued.

The PEG is a great tool to quickly scan for high growth stock at a fair price.You should never scan company based on a single ratio without doing your homework.You have to deploy other quantitative factors to consider for taking decision.