The PEG ratio is a stock's P/E ratio divided by its expected yearly earnings growth rate, entered as a plain number (12 for 12%). It adjusts the P/E for growth: the same P/E means something different for a company whose profits grow 5% a year than for one whose profits grow 25%. Because it depends on a forecast of growth, it is only as reliable as that estimate.
Worked example
Say Company A has a P/E ratio of 24 and its earnings are expected to grow 12% a year. PEG ratio = 24 ÷ 12 = 2.0. Company B also has a P/E of 24, but its earnings are expected to grow 24% a year, so its PEG is 24 ÷ 24 = 1.0. The P/E is identical, but the PEG shows that B's price is backed by faster expected growth, which is a question to look into, not a verdict.
Why it matters
The P/E alone ignores how fast a company is growing, so a high P/E can look expensive even when the growth behind it is strong. The PEG puts the two side by side in one number, which makes companies with different growth rates easier to compare. Its weak point is the growth figure: analysts' forecasts are estimates and are often revised, a small change in growth moves the PEG a lot, and it does not work when earnings are negative or growth is zero or below. It also ignores debt, risk and how long the growth can last, so treat the result as a question to look into, alongside other ratios.
Frequently asked questions
It means the P/E ratio equals the expected growth rate in percent, for example a P/E of 15 with 15% expected growth. Many people use 1 as a rough reference point, but it is not a rule: the right level differs by industry and depends heavily on how reliable the growth forecast is.
Divide the P/E ratio by the expected yearly earnings growth rate, entered as a plain number. A P/E of 20 with expected growth of 10% a year gives a PEG of 20 ÷ 10 = 2.0.
Use the same measure consistently, usually the expected annual earnings growth over the next few years from analyst estimates, or a past growth rate if you prefer. Different sources give different figures, so the PEG can change a lot depending on the choice.
Related terms
Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.