How the PEG ratio ignores any risk differential between industry and the company?
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The PEG ratio is calculated as the stock’s P/E divided by
the expected earnings growth rate (in percentage terms).
The ratio, in effect, is a calculation of a stock’s P/E per percentage point of expected growth.
Stocks with lower PEG ratios are more attractive than stocks with higher PEG ratios…PEG Ratio is a function of the risk, growth potential and payout ratio of the firm. The riskiness is assessed based on beta value. As risk increases, the PEG ratio of a firm will decline. This means that when different firms are compared, riskier firms will have lower PEG than the firms with safer performance.