PEG Ratio Calculator

The PEG Ratio

The PEG (Price/Earnings-to-Growth) ratio extends the classic P/E ratio by factoring in the company’s expected earnings growth rate. It was popularized by Peter Lynch in his book One Up on Wall Street.

Formula:

PEG = P/E Ratio ÷ Annual Earnings Growth Rate (%)

What the PEG ratio tells you:

A useful way to read it: PEG hits exactly 1.0 when the P/E equals the growth percentage. A stock on a P/E of 18 needs 18% growth to be fairly valued by Lynch’s rule. That makes the ratio easy to run in your head.

Two versions of PEG:

Forward PEG is more widely used for growth stocks. Trailing PEG is more conservative and based on actual reported data.

Classic example:

• Stock price = $50, EPS = $2.00 → P/E = 25
• Expected annual earnings growth = 20%
• PEG = 25 ÷ 20 = 1.25, so you are paying a 25% premium to the growth rate

Compare two stocks:

Stock B has the same P/E but half the growth, and PEG is what makes that visible.

Important caveats:

• Growth estimates are often wrong: treat PEG as a starting point, not a verdict
• Works best for growth companies; not reliable for cyclicals, banks, or utilities
• Negative earnings make PEG meaningless
• Very high growth rates (50%+) produce misleadingly low PEG values, because almost nothing sustains that pace for the several years the ratio quietly assumes