Speculation and news headlines aside, there is a pretty simple way for investors to know whether a stock has priced in its future growth yet or not, creating a reliable manner to measure whether they should stay invested in a company through the hard times or whether it is time to liquidate and go hunting for the next best deal. This can all be done with a single ratio.
This ratio is widely used amongst Wall Street professionals. The price-to-earnings-growth (PEG) ratio attempts to measure where a stock’s valuation is today relative to where analysts believe tomorrow’s earnings per share (EPS) growth can be.
