PEG Ratio Calculator
From the P/E ratio and the EPS growth rate, compute the PEG ratio to judge whether a valuation is justified by growth.
Input Data
Results
At a glance:The PEG ratio scales the P/E by expected growth. PEG = P/E ÷ EPS growth rate (%). Around 1 is often viewed as fairly valued; below 1 may be cheap for its growth, above 1 pricey. It helps compare companies at different growth rates.
Formula
PEG ratio = P/E ÷ EPS growth rate (%).
$$\text{PEG Ratio} = \dfrac{\text{P/E Ratio}}{\text{Earnings Growth Rate (\%)}}$$How to Use
- Enter the P/E ratio.
- Enter the expected annual EPS growth rate (%).
- Read the PEG ratio and compare with peers.
FAQ
What PEG is attractive?
A common rule of thumb: PEG around 1 means the valuation fairly reflects growth; below 1 is often seen as undervalued (you pay less per unit of growth); above 1 may be overvalued. But it is a rough guide, not a hard rule.
Why not just use the P/E ratio?
P/E ignores growth. A stock with a high P/E may be reasonable if its growth is also high; PEG adjusts the P/E for the growth rate so different-growth companies can be compared on a more equal footing.
Which growth rate should I use?
Use a forward/expected long-term growth rate (e.g. consensus 3-5 year EPS CAGR). The result is very sensitive to the growth assumption, so use a reasonable estimate, not a one-year spike.
Is PEG reliable for all companies?
It works best for steady-growth firms. For companies with negative or very low earnings the ratio is meaningless; for cyclical firms the growth rate swings and distorts it. Use it as one of several tools, not the sole basis.
What are the pitfalls of PEG?
First, it assumes a linear P/E-to-growth relationship, which may not hold. Second, it is highly sensitive to the growth forecast — over-optimistic forecasts make PEG look attractively low. Third, it ignores risk, dividends and the business cycle. Always cross-check with P/E, PB and the industry context.
Should I use historical or forecast growth for PEG?
PEG is meant to link today's price to future growth, so a forward-looking forecast growth rate is more appropriate than a past rate. Using last year's actual growth can mislead when the trend is changing. Many analysts use the consensus 3-5 year EPS growth rate. Whichever you pick, keep it consistent when comparing stocks.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.