Module 4 ยท Valuation and Ratios
PEG adjusts P/E for growth; P/B compares price to the book value of assets.
The PEG ratio divides P/E by the expected earnings growth rate. A PEG near or below 1 can suggest the growth is reasonably priced, though growth estimates are only guesses.
The price-to-book (P/B) ratio compares the share price to the book value of the company's net assets. It is most meaningful for asset-heavy businesses like banks and insurers.
No single ratio tells the whole story - use them together and with the business itself.
Example: Bajaj Finance
Bajaj Finance grows fast, so its P/E looks high. Checking its PEG - growth-adjusted - gives a fairer sense of whether that growth is priced reasonably.
PEG ratio = P/E divided by:
Why might P/B be more useful for a bank than for a software company?