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What is PEG Ratio (Price To Earnings To Growth Ratio)
Price To Earnings To Growth Ratio (PEG) is a term that refers to the ratio of share market price to the earnings per share and earnings growth.

Price To Earnings To Growth Ratio, usually the abbreviation PEG is used. It is a term that refers to the ratio of share market price to the earnings per share and earnings growth.

The indicator is based on the P/E ratio and it tries to take into account the future development. Its disadvantage is that it allows for an estimated annual profit growth. This estimate can cause a large divergence from the reality.

Calculation:

PEG = (P/E) / G

where:

The lower number comes out, the less we pay for future profit growth.

Use of the PEG in practice: The indicator helps an investor to decide whether to invest in certain shares. The literature recommends buying shares of PEG from 0.1 to 0.9, up to 1.5. Values ​​above 1 are traded above its growth potential.

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Last update: 01.04.2016

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