PEG ratio
Also known as: PEG
A ratio compares the price the market puts on a to a measure of the business, such as its , its assets, or its cash flow. It tells you how expensive a is relative to that measure, not just whether the share price is high or low in absolute terms.
The PEG ratio adjusts the for the company's expected growth rate. A high can look expensive in isolation, but if the company is growing quickly, that higher price may be entirely justified. The PEG ratio attempts to capture that by dividing by the annual rate.
The formula is:
ratio / rate (as a percentage, without the percent sign)A PEG ratio near 1 is often read as fairly priced relative to growth. Below 1 can suggest a is cheap relative to its growth, above 1 can suggest it is expensive relative to its growth. The ratio depends heavily on the growth estimate used, which is a forecast, not a reported fact, so it is far less reliable than ratios built only from historical numbers.