Finance Calc Kit

What is the PEG ratio?

The Price/Earnings to Growth (PEG) ratio adjusts a stock's price-to-earnings (P/E) multiple for its expected earnings growth rate. Popularized by investor Peter Lynch, it helps equity analysts answer a practical question: is a high P/E justified by how fast profits are expanding?

A standalone P/E of 30 might look expensive until you learn earnings are growing 30% annually. In that case, the PEG would be 1.00, suggesting the market is paying roughly one unit of valuation for each percentage point of growth. To build the P/E input from first principles, start with the earnings per share calculator, then project multi-year EPS expansion with the EPS growth calculator. For a conservative fair-value ceiling that blends earnings power with book value, compare your result against the Graham Number calculator.

Core PEG and PEGY formulas

The standard PEG ratio divides the P/E multiple by the expected annual EPS growth rate expressed as a whole-number percentage. If you know share price and EPS instead of P/E, compute the multiple first:

\text{P/E} = \frac{\text{Share Price}}{\text{EPS}}

\text{PEG} = \frac{\text{P/E Ratio}}{\text{Expected EPS Growth Rate (\%)}}

Dividend-paying stocks can be evaluated with PEGY (PEG ratio adjusted for yield), which adds the annual dividend yield to the growth rate in the denominator:

\text{PEGY} = \frac{\text{P/E Ratio}}{\text{EPS Growth Rate (\%)} + \text{Dividend Yield (\%)}}

Worked example: P/E 20 with 15% growth

Suppose a company trades at a P/E of 20 and analysts expect EPS to grow 15% per year. The PEG calculation is straightforward:

\text{PEG} = \frac{20}{15} = 1.33

A PEG of 1.33 means investors are paying slightly more than one unit of P/E for each percentage point of expected growth. Under the common Lynch benchmark, values above 1.00 can signal the stock is priced for optimism relative to its growth runway, while values below 1.00 may indicate a growth-adjusted discount.

Deriving P/E from market price

If the stock trades at $100 per share and reported EPS is $5.00, the implied P/E is 20. With the same 15% growth forecast, the PEG remains 1.33. This is why the calculator supports both direct P/E entry and price-and-EPS mode.

How to interpret PEG in practice

PEG near 1.00: Often treated as growth-adjusted fair value when using credible forward growth estimates.
PEG well below 1.00: May suggest the market is underpricing expected earnings expansion, though the growth forecast could be too optimistic.
PEG well above 1.00: Can indicate investors are paying a premium relative to projected growth, common in speculative momentum stocks.
Use forward growth, not history alone: PEG is most useful with analyst consensus or your own forward EPS forecast, not trailing growth from a single unusual year.
Pair with cash-flow valuation: For intrinsic-value cross-checks, discount projected free cash flows with the discounted cash flow calculator.

Limitations every investor should know

PEG is a heuristic, not a guarantee. It breaks down when expected growth is near zero or negative, when earnings are temporarily depressed, or when a company reinvests all cash and pays no dividend (making PEGY less informative). Cyclical businesses, turnarounds, and pre-profit growth companies often need enterprise-value multiples, margin analysis, or scenario-based DCF instead of a single ratio.

Frequently asked questions

What is a good PEG ratio?

Peter Lynch popularized the rule of thumb that a PEG near 1.00 suggests fair value relative to expected growth. Below 1.00 may indicate a growth-adjusted bargain, while above 1.00 may signal a premium. Context matters: industry norms, balance-sheet risk, and the reliability of the growth forecast all affect whether a given PEG is attractive.

Should I use trailing or forward EPS growth?

Forward expected growth is standard for PEG analysis because the ratio is meant to price future expansion. Trailing growth from the prior year can mislead when earnings were depressed, inflated by one-time items, or affected by a low base effect. Use consistent analyst estimates or your own forward projection.

What is the difference between PEG and PEGY?

PEG divides P/E by EPS growth alone. PEGY adds dividend yield to the denominator, rewarding income-producing stocks whose total shareholder return comes from both growth and cash distributions. PEGY is most useful for mature dividend payers where yield is a meaningful part of total return.

Can PEG be negative or undefined?

PEG is not meaningful when expected EPS growth is zero or negative, because the denominator collapses or flips sign. In those cases, use other metrics such as price-to-sales, EV/EBITDA, or discounted cash flow analysis instead of forcing a PEG interpretation.

How does PEG relate to the P/E ratio?

PEG is simply P/E divided by growth rate. A stock with P/E 25 and 25% expected growth has PEG 1.00, the same as a stock with P/E 10 and 10% growth. PEG normalizes valuation across different growth profiles, which raw P/E alone cannot do.

Are my inputs saved on your servers?

No. All calculations run locally in your browser. Changing inputs updates the page URL so you can bookmark or share a specific scenario.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.

PEG Ratio Calculator

Valuation inputs

Ratio summary

How the PEG ratio is calculated