what does the peg ratio tell you 
while a low p e ratio may make a stock look like a good buy factoring in the company s growth rate to get the stock s peg ratio may tell a different story the lower the peg ratio the more the stock may be undervalued given its future earnings expectations adding a company s expected growth into the ratio helps to adjust the result for companies that may have a high growth rate and a high p e ratio the degree to which a peg ratio result indicates an over or underpriced stock varies by industry and by company type as a broad rule of thumb some investors feel that a peg ratio below one is desirable according to well known investor peter lynch a company s p e and expected growth should be equal which denotes a fairly valued company and supports a peg ratio of 1 0 when a company s peg exceeds 1 0 it s considered overvalued while a stock with a peg of less than 1 0 is considered undervalued 2example of how to use the peg ratiothe peg ratio provides useful information to compare companies and see which stock might be the better choice for an investor s needs as follows assume the following data for two hypothetical companies company a and company b given this information the following data can be calculated for each company company acompany bmany investors may look at company a and find it more attractive since it has a lower p e ratio among the two companies but compared to company b it doesn t have a high enough growth rate to justify its current p e company b is trading at a discount to its growth rate and investors purchasing it are paying less per unit of earnings growth based on its lower peg company b may be relatively the better buy 