One way of valuing growth companies, many of which trade on high PE ratios, is by calculating PEG ratios, which basically divide expected EPS growth into the PE ratio. The lower the PEG ratio (preferably below 1.00) the better the value of the stock. There are various ways of calculating PEG ratios depending on what PE ratio is used (forward or trailing) and over what time period you measure the forecast EPS growth. We prefer to use PE ratios for the next 12 months (NTM) and to calculate expected EPS growth as a compound annual growth rate (CAGR) for the next 3 years, which is about as far out as consensus forecasts go. Dividing the second number into the first produces the PEG ratio. In the table below we show the calculations for a selected group of Australian and international growth stocks, ranked from lowest PEG ratio to highest.