P/E vs PEG: Which Ratio Saves Your SIP Returns?

P/E tells you what you pay per rupee of profit. PEG adds growth to that equation. Together, they help you avoid overpaying for slow-growth stocks or missing fast-growing bargains in your mutual fund or direct equity portfolio.

Here's what happened: The P/E ratio divides a stock's price by its earnings per share — a lower number often signals a cheaper stock, but ignores how fast profits are growing.. The PEG ratio divides P/E by the company's annual earnings growth rate — a PEG below 1 is generally considered undervalued by most analysts.. Indian retail investors increasingly use PEG alongside P/E when evaluating smallcap and midcap stocks, where growth rates vary widely across sectors..

What you should do: Check the P/E of any stock or mutual fund you hold on Screener.in or Tickertape — if it's above 40, also look up its 3-year earnings growth rate before deciding it's overpriced.. Calculate PEG yourself: divide the stock's P/E by its expected earnings growth percentage — if the result is below 1, the stock may be a growth bargain worth investigating further.. Avoid using P/E alone for sectors like IT, pharma, or FMCG where growth trajectories differ sharply — always pair P/E with PEG and revenue growth trends before investing..

PEG works best for consistent compounders. For cyclical sectors like metals or PSU banks, use Price-to-Book alongside P/E — earnings there are too volatile for PEG to be reliable.