PEG Ratio

The PEG ratio, or Price/Earnings to Growth ratio, refines the conventional P/E ratio by incorporating a company's expected earnings growth rate. It is calculated as PEG = P/E Ratio ÷ Annual EPS Growth Rate. A PEG of 1 is broadly considered fair value—below 1 may indicate undervaluation relative to growth, while above 1 suggests the market is pricing in premium expectations. Peter Lynch popularised the PEG ratio as a more complete valuation tool than the standalone P/E. For Indian investors comparing growth-oriented companies in sectors like technology, consumer goods, and financials, the PEG ratio helps distinguish genuinely cheap stocks from those that merely appear inexpensive.