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PEG Payback

The number of years it would take for a company's cumulative earnings (beginning at a base level of $1.00) to equal the stock's current P/E ratio, assuming that the company continues to increase its annual earnings at the growth rate used to calculate the PEG ratio.

A PEG payback period of six years, for example, means that it would take six years for an investor to recoup the price paid now for $1 of corporate earnings (the P/E ratio).

Equivalently, the PEG payback period is the number of years it would take for the cumulative earnings of a company (based on the forecast of future earnings growth used to calculate the PEG ratio) to equal the current price of the stock. In other words, the PEG payback period is the amount of time it would take for the company to "earn" its stock price. For comparison, it is also good to review a stock's PEG Payback period for both the industry and the S&P 500.

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