The PEG Ratio relates the Price/Earnings ratio (“P/E Ratio”) with the projected growth rate of earnings in the next few years (1-3). For instance, consider two companies that both earn $100 million in profit/year. One of them, a hot young tech company, is rapidly growing and projects to earn $1 billion in profit in two years. The other, a mature insurance company, is stable and projects to earn $100 million in profit next year. Because of the growth potential, the tech company’s total market cap will be far greater than the insurance company’s, and thus its P/E Ratio will be higher, perhaps erroneously giving the impression that it is overpriced relative to the insurance company stock. The PEG Ratio ostensibly adjusts for this growth differential to make comparisons between companies easier.