PEG ratio Definition
It is a stock’s P/E ratio divided by its 3- to 5-year growth rate in earnings (earnings growth may be computed using all historical earnings for last 3 to 5 years or may be computed using part historical and part forecasted earnings). It is often best to look for companies with a PEG ratio below 1.0. A stock with a high PEG ratio means that the stock’s P/E has outpaced its earnings growth and may be overvalued.
PEG ratio = P/E ratio / 3- to 5- year growth rate in earnings.