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The 'PEG ratio' (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share , and the company's expected growth.
Metrics like the price-to-earnings (P/E) ratio or price/earnings-to-growth (PEG) ratio are a good place to start, as they can help measure the company's growth potential in comparison to its stock ...
At its core, the PEG ratio helps compare valuation and expected growth. Generally speaking, a PEG ratio under 1 implies that the stock may be undervalued. Right now, Lilly's PEG ratio is 0.74.
Furthermore, a PEG ratio over 1 generally indicates that a stock is overvalued and that its price (market cap) is accelerating much faster than the expected growth in earnings per share over the ...
Stock valuation is the method of calculating theoretical values of companies and their stocks.The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the ...
Usage of the P/E ratio has the disadvantage that it ignores future earnings growth. Because the future growth of the free cash flow and earnings of a company drive the fair value of the company, the PEG ratio is more meaningful than the P/E ratio. The PEG ratio incorporates the growth estimates for future earnings, e.g. of the EBIT. Its ...
Comparatively, the stock traded at 63 times earnings two years ago, and Wall Street at the time anticipated earnings growth of 22% annually. Those figures give a significantly higher PEG ratio of 2.9.
The PEG ratio [4] is a special case in the SPM equation. If a company does not pay dividends, and its risk adjusted discount rate is equal to 10%, SPM reduces to the PEG ratio: If a company does not pay dividends, and its risk adjusted discount rate is equal to 10%, SPM reduces to the PEG ratio: