{"id":20101,"date":"2021-08-20T21:55:11","date_gmt":"2021-08-20T21:55:11","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=20101"},"modified":"2026-03-26T16:08:15","modified_gmt":"2026-03-26T16:08:15","slug":"p-e-to-growth-ratio-peg","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/p-e-to-growth-ratio-peg\/","title":{"rendered":"P\/E to Growth Ratio (PEG)"},"content":{"rendered":"<script type=\"application\/ld+json\">\r\n{\r\n  \"@context\": \"https:\/\/schema.org\",\r\n  \"@type\": \"QAPage\",\r\n  \"mainEntity\": {\r\n    \"@type\": \"Question\",\r\n    \"name\": \"Given a forward P\/E ratio of 8.20 and a 5-year EPS growth rate of 13%, what is the PEG ratio?\",\r\n    \"text\": \"Consider a company with a forward P\/E ratio of 8.20 and a 5-year EPS growth forecast of 13%. The PEG would be closest to:\\n\\nA. 0.42.\\n\\nB. 0.63.\\n\\nC. 63.07.\",\r\n    \"answerCount\": 1,\r\n    \"acceptedAnswer\": {\r\n      \"@type\": \"Answer\",\r\n      \"text\": \"The correct answer is B.\\n\\nThe PEG ratio is calculated as:\\n\\nPEG = P\/E ratio \u00f7 Growth rate\\n\\nPEG = 8.20 \u00f7 13 = 0.63\\n\\nTherefore, the PEG ratio is approximately 0.63.\"\r\n    }\r\n  }\r\n}\r\n<\/script>\r\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/0kMmbenpFuo\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><\/iframe><\/p>\r\n\r\n<p>The <em><strong>PEG ratio<\/strong><\/em> considers the impact of earning growth on the P\/E ratio. It is calculated as P\/E divided by the expected earnings growth rate in percentage. Stocks with lower PEG ratios are more attractive than those with higher PEG ratios. A PEG ratio of less than one would be considered an attractive investment level.<\/p>\r\n<p>However, the PEG ratio has several limitations:<\/p>\r\n<ul>\r\n\t<li>It assumes a linear relationship between P\/E and growth.<\/li>\r\n\t<li>It does not factor in differences in risk.<\/li>\r\n\t<li>It does not account for differences in the duration of growth.<\/li>\r\n<\/ul>\r\n<h4>Example: PEG Ratio<\/h4>\r\n<p>A company with a forward P\/E ratio of 9.21 and a 5-year EPS growth forecast of 12% would have a PEG ratio of 0.76 calculated as follow:<\/p>\r\n<p>$$\\text{PEG}=\\frac{9.21}{12}=0.76$$<\/p>\r\n<blockquote>\r\n<h1>Question<\/h1>\r\n<p>Consider a company with a forward P\/E ratio of 8.20 and a 5-year EPS growth forecast of 13%. The PEG would be closest to:<\/p>\r\n<ol style=\"list-style-type: upper-alpha;\">\r\n\t<li>0.42.<\/li>\r\n\t<li>0.63.<\/li>\r\n\t<li>63.07.<\/li>\r\n<\/ol>\r\n<h3>Solution<\/h3>\r\n<p><strong>The correct answer is B.<\/strong><\/p>\r\n<p>$$\\text{PEG}=\\frac{8.20}{13}=0.63$$<\/p>\r\n<\/blockquote>\r\n<p>Reading 25: Market-Based Valuation: Price and Enterprise Value Multiples<\/p>\r\n<p><em>LOS 25 (k) Calculate and interpret the P\/E- to- growth ratio (PEG) and explain its use in relative valuation.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>\ufeff\ufeff The PEG ratio considers the impact of earning growth on the P\/E ratio. It is calculated as P\/E divided by the expected earnings growth rate in percentage. Stocks with lower PEG ratios are more attractive than those with higher&#8230;<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,401],"tags":[216,402,485,474],"class_list":["post-20101","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-equity-valuation","tag-cfa-level-2","tag-equity-valuation","tag-p-e-to-growth-ratio-peg","tag-reading-29-market-based-valuation","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>P\/E to Growth Ratio (PEG) in Stock Valuation<\/title>\n<meta name=\"description\" content=\"Learn how the PEG ratio is calculated and used to assess stock valuation by adjusting the P\/E ratio for expected earnings growth.\" 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