## Understanding the ratio price earnings growth (PEG ratio) and its limitations is a key component of learn trading and investing course.

**Now lets look at Earnings Growth in the PEG ratio which is the Price Earnings Growth Ratio.**

The formula for calculating the price earnings growth (PEG ratio) is as follows:

PEG Ratio to Growth = (Price / Earnings per Share) ÷ Earnings growth.

The G stands for Earnings per Share Growth i.e. the amount the Earnings per Share are projected to grow in % terms.

Lets consider an example:

Price = £10.00 per share

EPS = £1.00 per share

Therefore P/E = 10

Dividends are currently 10p per share but analysts estimate they will be 12p per in five years time. This represents a growth of 20% in dividends.

Therefore PEG = 10 ÷ 20 = 0.5

PEG = 0.5

If the PEG ratio is at 1 it is considered fairly valued i.e. the valuation is fair. Below 1 and you are looking at a stock that is undervalued.

Below is a video on PEG ratios: