PEG Ratio Calculator

The price-to-earnings ratio is one of the most popular valuation metrics in investing — but it has a blind spot. A stock trading at 30x earnings might look expensive next to one at 15x, but what if the first company is growing earnings at 25% per year while the second is barely growing at all? That is exactly the problem the PEG ratio was designed to solve.

The PEG ratio adjusts the P/E ratio by the company's expected earnings growth rate, giving you a single number that tells you whether you are overpaying for growth — or getting a bargain. In this guide, we will break down exactly how it works, when to use it, and when to be cautious.

Try It: PEG Ratio Calculator

Plug in any stock's price, earnings per share, and expected EPS growth rate to instantly see both the P/E and PEG ratios. Experiment with different growth assumptions to see how they change the picture.

What Is the PEG Ratio?

The PEG ratio stands for Price/Earnings-to-Growth. It takes the familiar P/E ratio and divides it by the expected annual EPS growth rate (expressed as a whole number, not a decimal).

PEG = (Price / EPS) / EPS Growth Rate

Example: A stock at $100 with $5 EPS and 20% expected growth → P/E = 20 → PEG = 20 / 20 = 1.0

The ratio was popularized by legendary investor Peter Lynch in his book One Up on Wall Street. Lynch's rule of thumb was simple: a fairly valued company should have a PEG ratio of about 1.0 — meaning its P/E ratio roughly equals its growth rate.

How to Interpret PEG Values

Here is a general framework for interpreting PEG ratios. Keep in mind these are guidelines, not hard rules — context always matters.

• PEG below 1.0: The stock may be undervalued relative to its growth. The market is not fully pricing in the earnings growth potential. This is the sweet spot for growth-at-a-reasonable-price (GARP) investors.
• PEG around 1.0 to 1.5: Generally considered fairly valued. The price reflects the expected growth rate reasonably well.
• PEG above 2.0: Potentially overvalued relative to growth. Investors may be paying too much for the expected earnings growth. Proceed with caution.

PEG Ratio vs P/E Ratio: Why PEG Is Often Better

The raw P/E ratio tells you what the market is willing to pay per dollar of current earnings, but it ignores the trajectory. Consider two companies:

• Company A: P/E of 30, EPS growing at 30% per year → PEG = 1.0
• Company B: P/E of 15, EPS growing at 5% per year → PEG = 3.0

On a P/E basis alone, Company B looks cheaper. But the PEG ratio reveals that Company A is actually the better value relative to its growth. You are paying 1x for each percentage point of growth at Company A versus 3x at Company B.

This is why PEG is especially useful when comparing growth stocks against each other, or when deciding whether a high P/E is justified.

Sector Context Matters

Like P/E, PEG ratios should be compared within context. Fast-growing technology companies routinely carry higher PEG ratios than slow-growing utilities, and that does not necessarily mean the tech company is overvalued. Different sectors have different growth profiles, risk characteristics, and capital requirements that affect what investors are willing to pay per unit of growth.

A few sector-specific notes:

• Technology: Often higher PEGs (1.5-2.5) due to market confidence in durable growth and scalable business models.
• Consumer Staples: Typically lower PEGs (0.8-1.5) reflecting modest but predictable growth.
• Financials: PEG can be less reliable due to cyclical earnings swings. Use with caution for banks and insurers.
• Cyclicals: PEG is often misleading for cyclical businesses because earnings growth can spike temporarily near the bottom of a cycle.

Limitations to Keep in Mind

The PEG ratio is a useful shortcut, but like any single metric, it has limitations:

1. Growth estimates are just estimates. PEG relies on projected growth rates, which can be wildly wrong. Use consensus estimates as a starting point and stress-test with your own assumptions.
2. It ignores risk and quality. Two companies with the same PEG could have very different balance sheets, competitive positions, and earnings quality. Always look at the full picture.
3. Negative earnings break it. If a company has negative earnings or negative growth, the PEG ratio is meaningless. The formula only works for profitable, growing companies.
4. It assumes linear growth. PEG treats growth as a constant rate, but real companies accelerate, decelerate, and face disruptions. High growth today does not guarantee high growth tomorrow.

Screen for Low-PEG Stocks

Ready to find stocks that might be undervalued relative to their growth? Our screener makes it easy. Use the value preset to start with fundamentally cheap stocks, then layer on growth filters:

• Start with the Value Screener Preset to find stocks trading below fair value.
• Or screen directly for low PEG ratio stocks — companies where growth is priced cheaply.

Combine PEG with other quality metrics like return on equity, profit margins, and debt levels to build a well-rounded screen. The best bargains are companies that are not just cheap relative to growth, but also fundamentally strong.