Finding stocks to buy when markets feel stretched isn’t easy — but one valuation ratio I always note is the price-to-earnings-to-growth (PEG) ratio.
The idea is simple: divide a company’s forward price-to-earnings multiple by its forecast earnings growth rate (ideally the medium-term average). A reading below one suggests you’re getting more growth than you’re paying for — a signal that a stock might be cheap relative to its prospects.
The US market feels particularly hot, which has thinned my interest a little. But these are stocks with a low PEG that I’m watching and considering (in some cases buying more of).
Melrose Industries — PEG 0.9
If you missed the Rolls-Royce recovery story, Melrose Industries (LSE:MRO) may deserve your attention today. This FTSE 100 aerospace supplier has quietly delivered an impressive turnaround, taking its operating margin from -8% in 2022 to nearly 17% in its most recent full-year results.
The business makes advanced structural components and electrical systems for Boeing, Airbus, GE and Safran. Crucially, it holds sole-source positions across much of its portfolio — meaning it’s often the only qualified supplier for specific parts on specific aircraft. Those contracts typically run for 25 to 30 years, making the revenue stream unusually durable.
Analysts forecast double-digit annual EPS growth going forward, with a consensus price target of 693p — more than 30% above where the shares sit today. Melrose is available at around 13 times and has a PEG ratio of 0.9.
The main risk is the balance sheet. Net debt stands at £1.74bn and free cash flow is only just turning positive.
US names with sub-1 PEGs
Several US-listed stocks on my watchlist screen well on the same measure, though each carries its own complexity.
- STMicroelectronics, a European semiconductor giant — sits deep in a cyclical earnings trough with a PEG of 0.91. Analysts expect earnings to more than double over the next two years as silicon carbide chip demand accelerates across electric vehicles and AI data centres.
- Arrow Electronics, a global electronic components distributor, trades at a PEG of 0.88 on 25% forecast EPS growth, as the inventory cycle turns and AI-driven demand picks up across industrial and defence end markets.
- Shoals Technologies, holding an estimated 45%–50% share of the US solar infrastructure market and backed by a $748m order book — is at 0.88 too, with data centre solar demand emerging as a second growth driver alongside its core utility business.
- VEON, an emerging market telecoms operator with digital revenue growing at 63% year-on-year, offers 52% forecast EPS growth and a PEG of just 0.22.
- Synaptics, a fabless chip designer pivoting towards AI edge computing and IoT connectivity. PEG at 0.97, with five consecutive quarters of double-digit revenue growth behind it.
- Daktronics, transforming into a high-margin MicroLED display manufacturer and riding a wave of global sports venue upgrades. The PEG sits at 0.71 with a $342m backlog.
All the stocks on this list carry risk to varying degrees. Shoals, for example, faces margin pressure due to tariffs. VEON, headquartered in Dubai, faces significant geopolitical risks.
The bottom line
PEG ratios are a starting point, not a conclusion, and every name on this list carries risk. But when markets are running hot (as it is in the US) finding companies where growth looks under-appreciated is worth the effort. All of these are worth a closer look.
