What Is the PEG Ratio in the Stock Market? – A Complete Guide for Smart Investors
Introduction: Why Valuation Needs More Than Just P/E Valuation is the foundation of intelligent investing. Every investment decision—whether made by an individual investor or a professional fund manager—ultimately depends on answering one core question: Is this stock worth the price being paid today? Over decades, investors have relied on valuation ratios to bring objectivity to this question, and among them, the Price-to-Earnings (P/E) ratio has remained the most widely used. The popularity of the P/E ratio is understandable. It is simple, intuitive, and easily available. By comparing a company’s market price with its earnings, investors attempt to judge whether a stock is expensive or cheap. However, simplicity often hides complexity. The P/E ratio, while useful, offers only a snapshot of valuation based on current or past earnings. It does not account for what matters most in equity investing—the future growth of those earnings. This limitation leads to common misinterpretati...