PEG Ratio

P/E adjusted for growth.

A high P/E isn't necessarily expensive if the company is growing fast. The PEG ratio divides P/E by the earnings growth rate to put fast and slow growers on a fairer footing. PEG = P/E ÷ annual earnings growth rate (%) P/E of 20, earnings growing 20% a year. PEG = 20 ÷ 20 = 1. A PEG near 1 is often seen as fairly priced for the growth. PEG below 1 Growth may be cheap relative to price. PEG around 1 Roughly fair value for the growth. PEG above 1–2 Paying up for growth; needs the growth to materialise. Contextualises a high P/E Fairer for growth companies Simple to compute Relies on a growth estimate that may be wrong Meaningless if earnings are erratic Growth rates don't last forever

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Ratios.