The PE ratio is a quick measure to compare the Price (P) and the Earnings of a share (E). How then to consider the merits of shares with different PE ratios? Well some say that the Growth (G) can be used to "normalise" a range of PEs across several shares, and so help you choose. The PEG ratio simply divides PE by G to give you a new figure - the PEG ratio.
To see if the "PEG ratio" helps you decide on a share, you have to understand that its about the shape of the earnings profile, not the trivial arithmetic...
Link to this little sheet - it should help...
user_uploads/PEGIllustrator2.xls
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