How To Find P/E And PEG Ratios

The Price Earnings (P/E) ratio is a valuation measure that compares the price of a stock to its earnings per share (EPS). A stock with high P/E ratio can be overpriced.

The PEG (Price/Earnings to Growth) ratio is a valuation metric used to measure a stock's value while taking into account the price of a stock, the earnings per share, and the expected growth of the company. The lower the PEG ratio, the more undervalued the stock is. The ratio can be calculated by taking the P/E and dividing it by the projected growth in earnings.

Many investors prefer to use PEG ratio instead of just P/E ratio because it considers the projected earnings growth rate in its valuation.

Formula:
(1) P/E Ratio = Market price per share / Earnings per share
(2) PEG Ratio = (P/E) / (Projected growth in earnings)

Learn how to calculate the P/E and PEG ratios with the following examples:

Example 1:
If a stock has a P/E of 50 and projected earning growth next year of 20%, then the PEG = 50 / 20 = 2.5

Example 2:
Find the P/E and PEG ratios for Company ABC, which is trading at $30 per share with an EPS of $2.00. Analysts predicted an annual earnings increase of 10% next year.
Solution:
P/E = 30 / 2 = 15
PE/G ratio = 15 / 10 = 1.5

* Next: How to Calculate Price to Cash Flow Ratio