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The PEG ratio compares a stock price/earning (P/E) to its expected EPS (Earning Per Share) growth. If a company’s stock has P/E 20, and its EPS is expected to grow 20%, then PEG will be 20/20 = 1. PEG equals one, means that it has fair value not undervalue nor overvalue.

PEG can help investor in finding low valued stock. If PEG lower than 1, it is possibly a sign of undervalued stock. In addition, if PEG is greater than 1, it might indicate that the stock is overvalued. Growth stock usually has PEG greater than 1 because it is expected to have high growth. Always remember to compare PEG and other ratio with other companies which are in the same industry and preferable the same size.
The hard thing when using PEG is getting the EPS growth. We can’t predict EPS growth accurately, although companies usually set the companies growth target. Anything can happened in the future, so PEG might be misleading.

Financial ratio can tell a lot about a company. You can see how much they make profit, or how healthy they are. Financial ratio can help making decision in picking a stock. To know whether a company is healthy or not, you can check their current ratio (current assets / current liabilities), debt ratio (total debt/total assets), and debt to equity ratio (total debt / total equity). To know the performance of making profit, check the Return on Asset (ROA = Net Income / total assets) and Return on Equity (ROE = Net Income / total equity). Another important ratio is Earning per Share (Net Income / total outstanding shares), Price/Earning ratio (P/E = market price per share / earning per share), and price/book value ratio (market price per share / book value per share). The higher the current ratio, ROE, ROA is better. The lower the debt ratio and debt to equity ratio is better. Low P/E and price/book value ratio means the stock is cheap. Cheap stock means that it has poor performance or people didn’t realized that the company is good. To make decision on which stock you should buy, compare financial ratios between each company in the same sector / business.

Value investing is a popular stock-picking method. Benjamin Graham and David Dodd, finance professors at Columbia University, laid out what many consider to be the framework for value investing. The concept is actually very simple: find companies trading below their inherent worth. Warren Buffet is the second riches man on earth by this article made, uses this strategy.
How?
Value investing uses screener to choose stock. The basic of the screener is:

• Low price, can be seen through it’s Price Earning (P/E) Ratio and Price Book Value (PBV)
• Good growth, through it’s Earning growth.
• Safety, no more debt than equity, and current asset should be two times current liabilities.
• Income, the stock should give us sufficient dividend yield, at least two-thirds of the long-term AAA bond yield.

How’s the performance?
According analysis done by many people, stock with low P/E usually beat other stock in return. But you must remember that not all low P/E is a good stock, maybe people won’t buy low P/E stock because the company has poor earning. The second riches person uses this strategy, so there is proof of the goodness Value investing.
For who?
Value investing is long term horizon, more than 1 year. So if you’re patient, then maybe this is your stock pick style.