Peg Formula Field with airSlate SignNow

Peg calculated field

in this video we're going to talk about the PEG ratio the PEG ratio is equal to the price to earnings ratio divided by the earnings to growth rate which I'm going to abbreviate as EGR when the PEG ratio is low it indicates that the stock may be undervalued when a PEG ratio is high it indicates that the stock might be overvalued now the price to earnings ratio it's equal to the price of the stock divided by the EPS or the earnings per share now let's say we have two different companies company a and Company B and let's say that the price of the stock for company a is $50 and we're gonna say that Company B is trading at the same price of $50 now let's say that the earnings per share of Company A is 2.5 and for Company B we're gonna say that the earnings per share is 5 what is the p/e ratio for these two companies as was mentioned before the p/e ratio is equal to the price of the stock divided by the earnings per share so 50 divided by 2.5 is equal to 20 and for Company B the p/e ratio is going to be 50 divided by 5 which is 10 so looking at the p/e ratios of these two companies which company would you say is undervalued and which one is overvalued now Company B appears to be undervalued with respect to a company 8 because it has a lower p/e ratio Company B is trade in that 10 times earnings while Company A is trade in that 20 times earnings so looking at the p/e ratio it appears that Company B is undervalued with respect to a but now let's calculate the PE G ratio or the PEG ratio let's say the earnings growth rate for company a is 20% while the earnings growth rate for Company B is 5% now the earnings growth rate that is used in different finance websites to calculate the PEG ratio may vary some may use a five-year earnings growth rate while other websites may use an annual earnings growth Li so you might see some variation here but just to keep things simple let's use an annual earnings growth rate the PEG ratio is the p/e ratio divided by the earnings growth rate so 20 divided by 20 percent will give us a peg ratio of 110 divided by 5% will give us a peg ratio of 2 now like the p/e ratio a low PEG ratio indicates the stock is undervalued whereas a high PEG ratio indicates the stock is overvalued the difference between the PEG ratio and a p/e ratio is that the PEG ratio takes the earnings growth rate into account thus as we can see in this example the p/e ratio doesn't give us the whole picture the p/e ratio tells us that Company B is undervalued with respect to Company A but the PEG ratio tells us that company a is undervalued with respect to Company B so the PEG ratio gives us a more complete picture of the company than the p/e ratio because it factors into account not only the p/e ratio but how fast the company can grow its earnings therefore if you want to analyze whether or not a company might be undervalued or overvalued the p/e ratio is still very helpful it still wise to take that into account a low p/e ratio in the case that the company the undervalued is not a guarantee it's simply an indicator whereas a company with a high p/e ratio it may be overvalued or it may be undervalued if you take into account how fast it's growing because there are some companies with high p/e ratios and the stock price continues to climb higher especially the companies that are grown fast and so that's when you want to take into account the PEG ratio so you want to look into the both of these ratios if both the p/e ratio and the PEG ratio is low that's the strong indication that the company might be undervalue