Basic Formula
The growth rate is expressed as a percentage above 100%, and should use real growth only, to correct for inflation. E.g. if a company is growing at 30% a year, and has a P/E of 30, it would have a PEG of 1.
A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive).
The P/E ratio used in the calculation may be projected or trailing, and the annual growth rate may be the expected growth rate for the next year or the next five years.
Examples:
- Yahoo! Finance uses 5-year expected growth rate and a P/E based on the EPS estimate for the current fiscal year for calculating PEG (PEG for IBM is 1.26 on Aug 9, 2008 ).
- The NASDAQ web-site uses the forecast growth rate (based on the consensus of professional analysts) and forecast earnings over the next 12 months. (PEG for IBM is 1.148 on Aug 9, 2008 ).
Read more about this topic: PEG Ratio
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