Definition

The Price to Earnings to Growth ratio or better known as the PEG Ratio helps to determine a more accurate value of a stock by looking at the current P/E ratio and factoring its' expected earnings growth rate over a specified time frame.

Calculation

PEG Ratio = (P/E Ratio)/EPS Growth

example: Disney's P/E Ratio is 15.98 and has a forecasted EPS of $0.83 for the current earnings period, as a result Disney would have a a PEG Ratio of  19.25

Why is this important?

"The The PEG ratio is considered to be an indicator of a stock's true value, and similar to the P/E ratio, a lower PEG may indicate that a stock is undervalued."