PEG Ratio Calculator
Calculate the PEG ratio — Price/Earnings divided by earnings growth rate — to find stocks that may be undervalued relative to their growth.
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:
| PEG Value | Interpretation |
|---|---|
| PEG < 1 | Potentially undervalued relative to growth |
| PEG = 1 | Fairly valued, price matches growth expectations |
| PEG > 1 | Potentially overvalued relative to growth |
| PEG > 2 | High premium, requires strong confidence in growth |
Two versions of PEG:
| Version | Growth Rate Used |
|---|---|
| Trailing PEG | Actual EPS growth over past 12 months |
| Forward PEG | Analyst-estimated EPS growth for next year |
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: slightly expensive relative to growth
Compare two stocks:
| Stock | P/E | Growth | PEG | Verdict |
|---|---|---|---|---|
| Stock A | 30 | 30% | 1.0 | Fair value |
| Stock B | 30 | 15% | 2.0 | Expensive |
Stock B has the same P/E but half the growth — PEG reveals the difference.
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%+) can produce misleadingly low PEG values
How we build and check this calculator
This calculator runs entirely in your browser, so the numbers you enter stay on your device. The math behind it is written by hand and tested against worked examples and standard references before the page goes live.
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