Wrong! PEG is the ratio of the PE to the expected annual growth of profits in percentage terms.

Right! The PEG ratio is especially useful for high growth industries like information technology.

Significance: The lower the PEG ratio the more attractive the stock is and in particular a PEG less than 1 is often considered attractive. So for example an IT stock may be an attractive buy even with a PE ratio of 30 if you expect earnings to grow at more than 30 per cent in the future.

A cement stock may not be good value even at a P/E ratio of 10 if future growth prospects are poor.

PEG = PE divided by expected profit growth in percentage terms.