PEG Ratio

The PEG Ratio can be calculated as :

Forwards PE  Forecasted earnings per share growth

If the PEG Ratio is less than 1 and has high growth potential, then the company may be undervalued.

If the PEG Ratio is more than 1 but has low growth potential, then the company may be overvalued.

How option traders can make use of the PEG Ratio?

If a PEG Ratio is less than 1 and has high growth potential, option traders can take a bullish position on the underlying security.