The PEG ratio, or Price/Earnings to Growth ratio, is a valuation metric used to assess a stock's value relative to its earnings growth rate. It is calculated by dividing the Price-to-Earnings (P/E) ratio by the expected earnings growth rate (usually expressed as a percentage).
The formula is:
\[ \text{PEG Ratio} = \frac{\text{P/E Ratio}}{\text{Earnings Growth Rate}} \]
A PEG ratio of 1 suggests that a stock is fairly valued, while a ratio above 1 may indicate that it is overvalued, and below 1 may suggest it is undervalued. The PEG ratio helps investors consider a company's growth prospects alongside its current valuation.
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