# Calculate and Interpret the PEGY Ratio

The Price/Earnings to Growth and Dividend Yield (PEGY) Ratio is a variation of the price-to-earnings (P/E) ratio where a stock’s value is further assessed through a calculation that considers the company’s projected earnings growth rate and dividend yield. Once calculated, the figure is compared to ratios of the company’s competitors or against any group that has similar financial characteristics to determine whether the stock is fairly priced.

#### PEGY Ratio v. P/E Ratio

The P/E ratio is the most widely used way to measure relative valuation between two stocks. The ratio provides investors with a measure of how much Wall Street is willing to pay for each dollar of company earnings. By inverting this measure, you can determine the earnings yield and make comparisons against other types of investments, such as bonds. A known limitation of the P/E ratio is that it does not account for the underlying earnings of the company. For this reason, the PEGY ratio (which factors in a projected company growth rate and dividend yield) is often seen as a more useful valuation measure.

#### PEG Ratio v. PEGY Ratio

The PEG ratio is a simple valuation that says the P/E ratio of a company will equal its growth rate if that stock is fairly priced. A PEG ratio of 1.0 would indicate that the stock is fairly priced. A ratio of greater than 1.0 would mean that the stock is currently overvalued, while a ratio of less than 1.0 could indicate an attractive buying opportunity. The PEGY ratio is similar to the PEG ratio, except that it is commonly used for dividend-paying stocks as it accounts for dividend yield. While the PEG ratio considers earnings growth, it ignores the dividend yield. The PEGY ratio includes both dividend yield and projected earnings growth in its measure.

#### To Collect Data for the Calculation

Go to Yahoo! Finance and enter the stock symbol in the *Get Quotes* window.

To collect growth estimates, click on *Analyst Estimates* under *Analyst Coverage* on the left-hand side.

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#### Calculating the PEGY Ratio

The formula for the PEGY ratio can be written as:

##### PEGY Ratio = P/E Ratio / (Projected Earnings Growth + Dividend Yield)

As with the PEG ratio, you should bear in mind the figures are based on future projections; the value of the output is dependent on the accuracy of the input.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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