Screening for Value and Growth Stocks Using the PEG Ratio – Zacks Investment Research

Looking to invest in stocks but not sure where to start? One popular method is to screen for value and growth stocks using the PEG ratio. This ratio combines the P/E ratio with the expected earnings growth rate to give investors a better understanding of a stock’s valuation.

The PEG ratio is calculated by dividing a stock’s P/E ratio by its earnings growth rate. A PEG ratio of 1 is considered fair value, with anything below 1 indicating that the stock may be undervalued and anything above 1 indicating that it may be overvalued.

When screening for value stocks, investors typically look for stocks with a low PEG ratio, as this suggests that the stock is undervalued relative to its earnings growth potential. On the other hand, when screening for growth stocks, investors may be willing to pay a higher PEG ratio for stocks with strong growth prospects.

Using the PEG ratio can help investors narrow down their list of potential investments and identify stocks that may offer both value and growth potential. However, it’s important to remember that the PEG ratio is just one tool in the investor’s toolbox and should be used in conjunction with other fundamental and technical analysis.

By screening for value and growth stocks using the PEG ratio, investors can make more informed decisions about where to allocate their investment dollars. So next time you’re looking to invest in stocks, consider using the PEG ratio to help guide your decision-making process.