PEG Ratio Calculator
Calculate the PEG ratio from a stock’s P/E and its earnings growth rate to judge valuation relative to growth.
How it works
PEG ratio = P/E ratio ÷ annual earnings growth rate (in %)
The PEG ratio refines the P/E by dividing it by the company’s earnings growth rate, so a high P/E can still look reasonable if profits are climbing fast. Popularized by Peter Lynch, the rule of thumb is that a PEG near 1.0 marks fair value, below 1.0 hints at a bargain, and well above 1.0 suggests you are overpaying for the growth on offer. Because it leans on a growth forecast, PEG is only as reliable as the estimate you feed it.
Worked example
A stock with a P/E of 25 growing earnings at 15% a year has a PEG of 25 ÷ 15 = 1.67 — priced at a premium to its growth. If that same P/E accompanied 25% growth, the PEG would fall to 1.0, or fair value.
Frequently asked questions
What PEG ratio is considered cheap?
A PEG under 1.0 traditionally suggests the market is underpricing the company’s growth. But the signal is only as good as the growth estimate, so treat it as one input, not a verdict.
What growth rate should I use?
Usually the projected annual EPS growth over the next 3–5 years. Using a realistic, sustainable rate matters — an inflated forecast makes any stock look cheap on PEG.
Why not just use the P/E ratio?
P/E ignores growth, so a fast grower and a stagnant company at the same P/E look identical. PEG puts them on a fairer footing by accounting for how quickly earnings are expanding.
Related calculators
Educational estimate, not investment advice. Ratios and valuation models are simplifications; verify figures against official filings and consult a licensed advisor before investing.