PEG Ratio

Business, Legal & Accounting Glossary

Definition: PEG Ratio



Full Definition of PEG Ratio


The PEG ratio is a formula used to estimate a stock’s value using its P/E ratio and its future earnings growth.

Unlike the P/E ratio, the PEG ratio considers a stock’s earnings growth potential.

To calculate a stock’s PEG ratio, its P/E ratio must be further divided by its projected earnings growth rate. A stock with a PEG ratio less than 1 is considered undervalued (and generally a good buy); greater than 1, overvalued. Of course, a PEG ratio of 1 indicates a stock with a fair value. The PEG ratio is not a firm measurement but simply a guideline, and the PEG ratio should not be used as the sole indicator of a stock’s under- or overvaluation. In addition, a PEG ratio of a stock should only be compared with PEG ratios of stocks from companies in similar sectors. This will ensure consistency during analysis.


Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/peg-ratio/
Modern Language Association (MLA):
PEG Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. July 09, 2020 https://payrollheaven.com/define/peg-ratio/.
Chicago Manual of Style (CMS):
PEG Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/peg-ratio/ (accessed: July 09, 2020).
American Psychological Association (APA):
PEG Ratio. PayrollHeaven.com. Retrieved July 09, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/peg-ratio/

Definition Sources


Definitions for PEG Ratio are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 6th February, 2020 | 1 Views.