PEGR = PER/(EPS growth rate).
Indicators that emerged to complement PER that does not reflect expectations for growth. Even if the PER is high, the PEGR can be lowered if the profit growth rate is high (growth potential).
Peter Lynch recommends setting the benchmark at 1 and buying below 0.5, and selling above 1.5
Company A - PER 10, EPS growth rate 5% => PEGR 2.
Company B - PER 20, EPS growth rate 20% => PEGR 1
If we only check PER, A is a good company to buy because Company A is undervalued. But when you look at B's profit growth rate, doesn't it feel like B is growing at a great rate?
Which company would you buy? There is no correct answer.