PEG Payback Period

When you make an investment, you want to feel like you know what you’re getting into. At least a little bit, right? For instance, how long would it take to double your money from a stock? If the answer is “a looooonngggg time” compared to similar options, it might be not worth the risk.

How long it takes for an investor to double their money invested in a stock is the PEG payback period. What’s a PEG, you ask? Stands for price-n-earnings-to-growth ratio. Which makes sense...the price paid by the investor, and the earnings accumulated based off of company growth. All of the necessary ingredients to double your money...maybe.

Investors compare PEG payback periods across stocks to measure the relative risk associated with each. The faster an investment earns gains, the more liquid it is. And we all know liquid investments (think: money markets, cash, deposits) are the safest. Yet that also makes them usually low-interest, so...tradeoffs. Typical.