What it is
A P/E of 25 looks expensive next to a P/E of 12, until you learn the first company is growing profit 30% a year and the second 5%. The PEG ratio puts growth into the comparison.
PEG = P/E ÷ EPS growth (as a plain number: 20% growth is 20). P/E 25 with 30% growth gives 0.83; P/E 12 with 5% growth gives 2.4. By this measure the 'expensive' share is the cheaper one.
Peter Lynch used a PEG around 1 as fair. Punji computes growth from EPS versus the same period a year earlier; when earnings fell or growth is too small to divide by, there is no PEG.
How it is calculated
PEG = (Price ÷ EPS) ÷ (EPS growth % vs the same period last year). No estimate when growth ≤ 0 or too small.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL: P/E of about 18.86 and EPS growth of 29.56% versus FY 2081/82 give a PEG of about 0.64.
NABIL's share capital includes Rs 500.00 crore of preference shares, so per-share figures here use its 27,05,69,970 ordinary shares, as the filing does.
What good looks like
Lower suggests more growth per unit of price. Around 1 is Lynch's 'fair'. For a bank, one year's EPS growth is noisy (provisions, write-backs, bonus shares), so read PEG as a hint.
Watch out
- One year of growth can be a write-back or a one-off; PEG then flatters.
- Bonus shares cut EPS and can turn real profit growth into negative EPS growth.
- Not defined when EPS fell; Punji shows 'no estimate' rather than a misleading number.
- Annualised part-year EPS makes growth a projection.
In Nepal
A Punji / textbook tool. Punji's growth input is the prior-year EPS from the same quarter; where the filing history is short, no PEG is shown.
Sources
Questions
Because EPS fell versus last year, grew too little to divide by, or there is not enough history. A negative or huge PEG would mislead.
Around 1. Below it, growth looks cheap; above it, you pay more for each point of growth.