<h2>Price/Earnings-to-Growth (PEG) Ratio</h2>
<p>The Price/Earnings-to-Growth (PEG) ratio is a valuation metric that helps investors determine the relative expensiveness of a stock compared to its expected earnings growth. It's an extension of the Price/Earnings (P/E) ratio, which only considers a company's current earnings.</p>

<h2>How It Works</h2>
<p>The PEG ratio is calculated by dividing the P/E ratio by the earnings growth rate:</p>
<p><strong>PEG Ratio = P/E Ratio / Earnings Growth Rate</strong></p>
<p>For example, if a stock has a P/E ratio of 20 and an expected earnings growth rate of 15%, its PEG ratio would be 1.33 (20 / 15).</p>

<h2>Why It Matters for Traders</h2>
<p>The PEG ratio helps traders identify undervalued or overvalued stocks. A PEG ratio of 1 suggests that the stock is fairly valued, while a ratio below 1 indicates that the stock might be undervalued. Conversely, a PEG ratio above 1 suggests that the stock might be overvalued.</p>
<p>However, it's essential to consider the industry and the company's growth prospects when interpreting the PEG ratio. High-growth tech stocks, for instance, often have higher PEG ratios.</p>

<h2>Example</h2>
<p>Let's consider two companies, A and B:</p>
<table>
<thead>
<tr>
<th>Company</th>
<th>P/E Ratio</th>
<th>Earnings Growth Rate</th>
<th>PEG Ratio</th>
</tr>
</thead>
<tbody>
<tr>
<td>A</td>
<td>15</td>
<td>10%</td>
<td>1.5</td>
</tr>
<tr>
<td>B</td>
<td>25</td>
<td>20%</td>
<td>1.25</td>
</tr>
</tbody>
</table>
<p>Based on the PEG ratios, Company B appears to be the better value, despite having a higher P/E ratio.</p>

<h2>Key Takeaways</h2>
<ul>
<li>The PEG ratio helps investors compare the valuation of stocks with different growth prospects.</li>
<li>A PEG ratio of 1 suggests a fairly valued stock, while ratios below or above 1 indicate potential undervaluation or overvaluation, respectively.</li>
<li>Industry and company-specific growth prospects should be considered when interpreting the PEG ratio.</li>
</ul>