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PEG Ratio Calculator

See if a stock's P/E is justified by its growth.

How it is calculated

The PEG ratio adjusts the price-to-earnings multiple for growth: PEG = P/E / annual EPS growth. P/E is the share price divided by earnings per share, and growth is the expected yearly growth of earnings per share as a plain percentage number, so 15 means 15 percent, not 0.15. Growth must be greater than zero; a zero or negative growth rate gives no result because the ratio would be meaningless. A PEG near 1 is often read as price in line with growth, but this is a rule of thumb. It depends heavily on which growth estimate you use (trailing or forecast) and on the sector.

Worked example

A company trades at a P/E of 20 and earnings are expected to grow 15 percent a year. PEG = 20 / 15 = 1.33. The P/E is about one and a third times the growth rate, so the stock looks a little richer than a PEG of 1 would suggest.

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Common mistakes

  • Typing growth as 0.15 instead of 15: the result becomes 100 times too large.
  • Using a P/E from one year and a growth rate from a different measure, such as revenue instead of EPS growth.
  • Relying on a single optimistic forecast; a small change in growth moves the ratio a lot.
  • Comparing PEG across very different sectors or between mature and early-stage firms.
  • Using negative or zero earnings growth: the tool returns nothing, and the ratio cannot be used then.

Sources

About this calculator

This calculator finds the PEG ratio (Price/Earnings-to-Growth), popularized by Peter Lynch: PEG = (P/E ratio) / (annual EPS growth rate, as a whole number, e.g. 15 for 15%). It adjusts the familiar P/E ratio for the company's expected earnings growth, so two stocks with the same P/E but different growth rates get different PEG scores.

Value and growth investors use it as a quick screen — a PEG near 1 is often read as fairly valued, below 1 as potentially undervalued relative to growth, and above 1 as potentially overvalued — though it works best for comparing similar companies in the same sector.

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  • Editorial team

    The result depends heavily on which growth number you enter. A trailing figure and an analyst forecast can produce very different ratios from the same P/E, so note where your growth rate came from. Enter growth as plain percent per year, 15 and not 0.15; with a P/E of 20 and growth of 15 you get 1.33. A zero or negative growth rate gives no result because the ratio loses its meaning. Which growth estimate do you use?

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