# Pe & Peg Ratio

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The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation. P/E ratio shows current investor demand for a company share. P/E ratio has units of years. P/E is the most popular metric of stock analysis. The reciprocal of the PE ratio is known as the earnings yield.

There are various P/E ratios, all defined as:

P/E ratio =

PRICE PER SHARE ANNUAL EARNINGS PER SHARE

Earnings per share (EPS) are the earnings returned on the initial investment amount. Calculating EPS

EPS(basic formula) EPS= Profit / Weighted average common share
lower PEG means that the stock is undervalued more. A crude analysis suggests that companies with PEG values between 0 to 1 may provide higher returns.

Let's say you're analyzing a stock trading with a P/E ratio of 40. The projected earning growth for the next year is 10%. So the PEG for company XYZ is 4, which is derived from dividing 40 by 10%.

How to interpret the result ????????

Investors may prefer the PEG ratio because it explicitly puts a value on the expected growth in earnings of a company. The PEG ratio can offer a suggestion of whether a company's high P/E ratio reflects an excessively high stock price

The PEG ratio is less appropriate for measuring companies without high growth. A company's growth rate is an estimate. It is subject to the limitations of projecting future events. For companies with zero expected growth, the ratio is undefined , and for companies with negative growth, the result (a negative PEG ratio) may be