The PEG (Price/Earnings to Growth)

 The PEG (Price/Earnings to Growth) ratio is a refinement of the Price-to-Earnings (P/E) ratio. It takes into account the expected earnings growth of a company, making it a more comprehensive measure of valuation, especially for growth stocks. Here's a breakdown:

• P/E Ratio: This is the price of a stock divided by its earnings per share (EPS). It tells you how much investors are willing to pay per dollar of earnings.

• PEG Ratio: The PEG ratio further divides the P/E ratio by the company's earnings growth rate (usually over the next few years). The formula is:

  $$\text{PEG Ratio} = \frac{\text{P/E Ratio}}{\text{Earnings Growth Rate}}$$

Interpretation:

• PEG = 1: The stock is fairly valued relative to its growth rate.
• PEG < 1: The stock may be undervalued, indicating it could be a good buying opportunity.
• PEG > 1: The stock may be overvalued relative to its growth rate.

The PEG ratio is particularly useful for evaluating growth stocks, as it factors in the future growth potential, which the simple P/E ratio does not account for.