PEG Ratio Calculator
Price/Earnings to Growth — valuing a stock against its growth
Enter Stock Data
P/E Ratio (entered directly)
Price-to-earnings ratio. Find this on financial websites or divide the share price by EPS. (e.g., 20)
%
Forecast annual earnings growth in percentage points, typically over the next 3–5 years. Enter 15 for 15%.
The PEG ratio (Price/Earnings to Growth) refines the familiar P/E ratio by dividing it by a company's expected earnings growth rate. It was popularised by Peter Lynch, the legendary manager of the Fidelity Magellan Fund, who used it to identify reasonably priced growth stocks.
PEG Ratio = (P/E Ratio) ÷ (Expected Annual EPS Growth Rate %)
Step 1: Enter the stock's P/E ratio directly, or switch to "price and EPS" and let the calculator compute the P/E for you (P/E = price ÷ EPS).
Step 2: Enter the expected annual EPS growth rate as a percentage (for example, 15 for 15%). Analyst consensus estimates for the next 3–5 years are a common source.
Step 3: Click Calculate to see the PEG ratio and an interpretation of whether the stock looks undervalued, fairly valued, or overvalued relative to its growth.
Step 4: Compare the result against peers and against your own growth assumptions. Remember the PEG is only as good as the growth estimate behind it.
What Is the PEG Ratio?
The PEG ratio — short for price/earnings to growth — is a valuation metric that improves on the standard P/E ratio by factoring in how fast a company is expected to grow its earnings. A P/E ratio on its own tells you how much investors are paying for each dollar of current earnings, but it says nothing about the future. A company growing earnings at 30% a year arguably deserves a higher P/E than one growing at 3%. The PEG ratio captures this by dividing the P/E by the expected growth rate, giving a single number that puts price and growth on the same footing.
The PEG ratio was popularised by Peter Lynch in his book "One Up on Wall Street." Lynch argued that a fairly priced company should have a P/E ratio roughly equal to its earnings growth rate — in other words, a PEG of about 1.0. This PEG ratio calculator lets you test that idea on any profitable, growing stock in seconds.
The PEG Ratio Formula
PEG = (P/E Ratio) ÷ (Expected Annual EPS Growth Rate %)
The growth rate is entered as a whole number of percentage points, not as a decimal. So a company growing earnings at 15% per year is entered as 15, not 0.15. If you do not already know the P/E ratio, you can derive it by dividing the share price by the earnings per share: P/E = Price ÷ EPS. This calculator will do that step for you if you choose the price-and-EPS mode.
The PEG ratio is only defined for companies with positive earnings and positive expected growth. If earnings are zero or negative, the P/E ratio itself is meaningless. If expected growth is zero or negative, the PEG ratio is undefined or negative and cannot be interpreted using the usual thresholds — a different valuation method is required for declining businesses.
A Worked Example
Suppose a stock trades at $90 per share and earns $4.50 in earnings per share over the trailing twelve months. Its P/E ratio is 90 ÷ 4.50 = 20. Now suppose analysts expect the company to grow its earnings by 15% a year over the next several years. The PEG ratio is the P/E divided by the growth rate: 20 ÷ 15 = 1.33.
A PEG of 1.33 is above 1.0, which under Peter Lynch's rule of thumb suggests the market is asking a modest premium for this company's growth — you are paying 1.33 units of P/E for each point of expected growth. By contrast, if that same company traded at a P/E of 12 with the same 15% growth, the PEG would be 12 ÷ 15 = 0.80, which would look potentially undervalued. The example shows how sensitive the PEG ratio is to both the price you pay and the growth you assume.
How to Interpret the PEG Ratio
Peter Lynch's guideline is straightforward: a PEG below 1.0 suggests a stock may be undervalued relative to its growth, a PEG around 1.0 suggests it is fairly valued, and a PEG above 1.0 suggests it may be overvalued because you are paying a premium for each unit of growth. The lower the PEG, the more growth you are getting for the price.
These thresholds are guidelines rather than rigid rules. High-quality companies with durable competitive advantages, predictable earnings, and long growth runways frequently trade at a PEG above 1.0 and still prove to be good investments. A very low PEG can sometimes be a warning sign that the market doubts the growth forecast. The PEG is best used to compare similar companies and to flag candidates for deeper research, not as a single buy-or-sell trigger.
Limitations of the PEG Ratio
The biggest weakness of the PEG ratio is its dependence on a growth estimate. Future growth cannot be known with certainty, and small changes in the assumed rate can swing the result dramatically. A company priced at a PEG of 0.8 on an optimistic 25% growth forecast might look expensive at a PEG of 2.0 if growth turns out to be only 10%.
The PEG ratio also ignores dividends, debt levels, and the quality and sustainability of earnings, and it treats all growth as equally valuable regardless of how risky it is. It works poorly for cyclical businesses, where earnings swing year to year, and it cannot be applied at all to loss-making companies. For these reasons it should sit alongside other tools — intrinsic value, margin of safety, and discounted cash flow analysis — rather than replacing them.
Using the PEG Ratio Alongside Other Tools
The PEG ratio answers one question — is the price reasonable given the growth — but a complete valuation needs more. To estimate a stock's intrinsic value from earnings and book value, use our Graham Number calculator and then confirm how much downside protection you have with our Margin of Safety calculator.
For a full discounted-cash-flow view, the discount rate matters: estimate a company's cost of capital with our WACC calculator and discount future cash flows back to today with our Present Value calculator. Together these tools let you cross-check a growth stock from several angles before you commit capital.
Frequently Asked Questions
As a rule of thumb popularised by Peter Lynch, a PEG ratio below 1.0 is considered attractive because you are paying less than one unit of price-to-earnings for each point of expected growth. A PEG around 1.0 is generally seen as fairly valued, and a PEG above 1.0 suggests you are paying a premium for growth. These thresholds are guidelines, not hard rules — high-quality, durable businesses often justify a PEG above 1.
The PEG ratio divides a stock's price-to-earnings (P/E) ratio by its expected annual earnings-per-share growth rate, expressed in percentage points. For example, a stock with a P/E of 20 and an expected EPS growth rate of 15% has a PEG of 20 ÷ 15 = 1.33. The growth figure is entered as a whole number (15 for 15%), not as a decimal.
The PEG ratio is forward-looking by design, so it is most useful with a forecast of future EPS growth — typically the consensus analyst estimate for the next three to five years. Some investors use trailing (historical) growth for a more conservative, evidence-based figure. Whichever you choose, be consistent and remember that the result is only as reliable as the growth estimate behind it.
The PEG ratio breaks down when a company has zero or negative earnings (the P/E ratio is undefined) or zero or negative expected growth (the ratio becomes undefined or negative and loses its meaning). It is therefore best suited to profitable, growing companies. For loss-making firms, cyclical businesses, or those in decline, other methods such as price-to-sales, discounted cash flow, or asset-based valuation are more appropriate.
The PEG ratio depends entirely on a growth estimate, which is inherently uncertain — small changes in the assumed growth rate can swing the result significantly. It also ignores dividends, debt, and the quality or sustainability of earnings, and it treats all growth as equally valuable regardless of risk. Use it as one screening tool among several, not as a standalone verdict on whether a stock is cheap or expensive.
Value Growth Stocks Like a Pro
The PEG ratio is one lens on a stock. Worthmap brings together valuation metrics, multi-currency portfolio tracking, and net-worth monitoring so you can judge price against growth across your entire portfolio — in every market and currency.
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