IntroductionIf you’re trying to determine whether a company’s stock is expensive, cheap, or fairly valued, the PEG (price earnings to growth) ratio is one of the best ratios to look at. The PEG RatioInstead of just looking at price-to-earnings, the PEG ratio also factors in the growth rate of the company, which is crucial in understanding if something is reasonably valued or not. Put simply, you take the price/earnings ratio and divide it by the earnings growth.

While there are different ways to calculate the PEG ratio the most common way is to divide the estimated price earnings per share for the next year by the estimated EPS growth for the next 3 or 5 years. In SummaryThe PEG ratio is one of the most useful ways to quickly evaluate the stock price of a company that is still growing so, if you can find a stock whose price-to-earnings ratio is lower than its revenue or earnings growth rate (PEG under 1), then you are likely to have an undervalued investment on your hands.Of the 65 AI stocks that are included in the various munKNEE portfolios, 20 have negative price earning ratios and, as such, can not provide PEG ratios. That leaves 45, of which only 3 have PEG ratios of less than 1.0 (i.e., are undervalued) and 4 have PEG ratios between 1.0 and 1.2 (i.e., are fairly valued). They are presented, in descending order, along with their market capitalizations, AI category, and any recent pertinent news, analyses or commentary:

Please keep in mind that PEG ratios are ratios of the current stock prices of the day to the forecast of earnings estimates of the company at a future date (usually either in 1 year, 3 years, or 5 years time) and, as such, PEG ratios are flexible and will vary daily as the company’s stock price fluctuates, increasing as the stock price rises and decreasing as the stock price falls. ConclusionEven though the PEG ratio is more useful than most others, it is still just a very simple mathematical formula and can not be used on its own to determine whether an investment is good or bad. You also need to look at a company’s balance sheet, debt burden, and cash flow, or other valuation metrics that use the income statement and such information can be found here to help you in doing your due diligence on those low PEG ratio stocks of interest. It’s also important to understand things like a company’s competitive advantage and its addressable market.More By This Author:Our Pure-Play Quantum Computing Stocks Portfolio Reversed Direction Last Week
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