A More Intuitive Formula for PEG Ratio

16 Pages Posted: 30 May 2019 Last revised: 8 Nov 2019

See all articles by Leo H. Chan

Leo H. Chan

Woodbury School of Business, Utah Valley University

Date Written: November 2019

Abstract

In this note, I derive a new formula for PEG ratio, utilizing the insight from Farina’s (1969) original equation and Lynch’s (1989) assertion that for a stock to be fairly valued, the PEG and earnings growth rate has to be the same. After deriving the new formula, I demonstrate how the new formula connects with the existing formula. The new formula allows for more flexibility for growth rate assumptions, is more intuitive, and easier to implement and can be used to make predictions about future price and earnings growth.

Keywords: PEG Ratio, Value Investing, Investment Valuation

JEL Classification: G40, G10, G20

Suggested Citation

Chan, Leo H., A More Intuitive Formula for PEG Ratio (November 2019). Available at SSRN: https://ssrn.com/abstract=3384411 or http://dx.doi.org/10.2139/ssrn.3384411

Leo H. Chan (Contact Author)

Woodbury School of Business, Utah Valley University ( email )

Department of Finance and Economics
800 West University Parkway
Orem, UT 84058
United States
801-863-8428 (Phone)

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