Ask a Fool: What Is the PEG Ratio?

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The PEG ratio is based on earnings and growth estimates, both of which can be misleading or hard to predict. However, like most sweeping metrics, it's directionally accurate and can be a great springboard for discovering growth companies. In the following video, Fool.com analyst Austin Smith explains the ins and outs of interpreting a PEG ratio and then zeroes in on a few companies' ratios for closer examination.

For instance, General Electric's (NYSE: GE  ) PEG ratio is currently at 1.04, and it also has a great dividend. So, here's a company that's fairly valued to growth, and you get a bit of a passive income stream from it as well -- meaning that at this moment, GE could be a great buy. One important thing to remember is that the PEG ratio doesn't account for dividends, which can make up a huge part of an investor's return. Check out the video to learn more about this often-misunderstood metric.

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Austin Smith owns shares of Apple and General Electric. The Motley Fool owns shares of Apple, LinkedIn, and Zillow. Motley Fool newsletter services recommend Apple, LinkedIn, and Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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