PEG ratio

The PEG ratio (price/earnings-to-growth) refines the familiar P/E ratio by taking a company's earnings growth into account, giving a fuller sense of whether a stock is truly cheap or expensive. It relates how much investors pay for each unit of earnings to how fast those earnings are expected to grow. A high P/E can look alarming on its own, but if profits are rising quickly the PEG ratio may reveal that the price is actually reasonable. As a rough rule of thumb, a value around 1 suggests fair pricing, below 1 may signal an undervalued stock, and above 1 hints that the market is paying a premium. Investors and analysts use it to compare fast-growing companies against slower ones on more even ground, since a plain P/E tends to punish growth stocks unfairly. It is most useful as a quick screening filter, but it leans on forecasts of future growth, which are uncertain and easy to get wrong. For that reason it works best alongside other measures rather than as a standalone verdict.