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PEG ratio

   Also found in: Financial, Wikipedia 0.01 sec.

PEG ratio

Method of relating the price of a share to growth. The ratio is calculated by dividing the price-earnings ratio (PE ratio) by expected earnings per share (EPS) growth. A value greater than one implies a stock is overvalued, and less than one implies one that is undervalued.

The ratio was invented by the English financial guru Jim Slater in the 1960s and is particularly useful for valuing small- and medium-sized growth stocks. The figures for the PE ratio and EPS used in calculating the PEG ratio are taken from consensus estimates.



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Commenting on the Oryx Fund Standard & Poors said, "The investment approach is very methodical and structured, emphasising bottom-up selection of companies with low PEG ratios and good management.
He says Lowe's is growing earnings around 15% a year, and shares have a P/E ratio of 15, generating a PEG ratio of 1.
As with p/e ratios, the lower the PEG ratio the cheaper the shares.
 
 
 
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