PEG Ratio Calculator: Evaluate Stock Value with Price-Earnings-Growth

How to Use the PEG Ratio Calculator Effectively

Our PEG Ratio Calculator simplifies stock valuation by combining the Price/Earnings (P/E) ratio with the expected earnings growth rate. To get accurate insights, follow these steps:

1. Enter the Price/Earnings (P/E) Ratio: For instance, you might input a value like 18.5 or 25.3 based on a stock’s current market data.
2. Input the Earnings Growth Rate (%): Provide an estimated annual growth percentage such as 12.4 or 8.7, which can be derived from analyst forecasts or the company’s historical growth trends.
3. Calculate the PEG Ratio: Click the calculate button to generate the PEG ratio instantly.
4. Interpret the Results: Review the calculated PEG ratio along with the brief interpretation provided to assess whether the stock may be undervalued, overvalued, or fairly valued.

Note: Always use the PEG ratio together with other financial metrics and qualitative research to make well-rounded investment decisions.

Introduction to the PEG Ratio Calculator: Definition, Purpose, and Benefits

The PEG Ratio Calculator is a vital financial tool that helps investors evaluate stock valuation by factoring in both a company’s price relative to earnings and its expected growth rate. Unlike the traditional Price/Earnings ratio, the PEG ratio offers a forward-looking perspective, making it a valuable resource for identifying growth at a reasonable price.

What is the PEG Ratio?

The PEG ratio measures the relationship between a stock’s Price/Earnings ratio and its annual earnings growth rate, revealing a more balanced view of valuation that accounts for future growth potential.

PEG Ratio Formula Explained

You can calculate the PEG ratio using this formula:

$$PEG\,Ratio = \frac{Price/Earnings\,Ratio}{Annual\,Earnings\,Growth\,Rate}$$

Or, more simply:

$$PEG = \frac{P/E}{g}$$

• P/E: The Price/Earnings ratio of the stock.
• g: Expected annual earnings growth rate, expressed as a percentage.

Purpose of Using the PEG Ratio Calculator

This calculator helps determine if a stock is undervalued, overvalued, or fairly priced relative to its expected growth. It is especially helpful when comparing companies from different sectors or growth stages, promoting smarter investment selections.

Benefits of Using the PEG Ratio Calculator

• Growth-Inclusive Valuation: Incorporates growth projections, providing a forward-looking assessment beyond the P/E ratio.
• Improved Stock Comparison: Facilitates comparisons between companies with varying growth rates, enabling better portfolio diversification.
• Spotting Undervalued Stocks: Identifies opportunities where growth prospects are strong but prices are comparatively low.
• Risk Mitigation: Highlights stocks that may appear cheap in terms of P/E but lack sufficient growth, reducing value-trap risks.

Example Calculations Using the PEG Ratio Calculator

Example 1: Tech Industry Growth Comparison

• Stock X: P/E ratio = 28, earnings growth rate = 14%
• Stock Y: P/E ratio = 35, earnings growth rate = 25%

Using the PEG ratio formula:

$$PEG_{Stock\,X} = \frac{28}{14} = 2.00$$

$$PEG_{Stock\,Y} = \frac{35}{25} = 1.40$$

Interpretation: Despite Stock Y having a higher P/E ratio, its PEG ratio indicates better value for its growth compared to Stock X.

Example 2: Evaluating a Consumer Goods Stock

• P/E ratio = 15
• Earnings growth rate = 7%

$$PEG = \frac{15}{7} \approx 2.14$$

Interpretation: A PEG above 2 suggests this stock may be overvalued relative to its growth potential.

Example 3: High Growth Tech Startup

• P/E ratio = 50
• Earnings growth rate = 60%

$$PEG = \frac{50}{60} \approx 0.83$$

Interpretation: The PEG below 1 often suggests the stock could be undervalued considering its strong growth prospects.