PEG Ratio Calculator
The growth-adjusted P/E ratio. Enter a stock's price, earnings, and expected growth rate to determine if the stock's valuation is justified by its growth. A PEG below 1 may indicate an undervalued opportunity.
Enter Stock Data
The PEG ratio adjusts the P/E ratio by the earnings growth rate to find growth-adjusted value.
PEG Ratio
Overvalued2.31
A PEG of 1.0 means fair value. Below 1 suggests the stock may be cheap relative to its growth.
Detailed Breakdown
P/E Ratio
23.1x
$150.00 ÷ $6.50
PEG Ratio
2.31
P/E ÷ Growth Rate
Fair P/E (at 10% growth)
10x
Growth rate = fair PE
PEG Fair Value
$65.00
-56.7% vs. price
How to interpret PEG ratios
| PEG Range | Interpretation | Signal |
|---|---|---|
| < 0.5 | Deeply Undervalued | Growth may be severely discounted. Investigate why. |
| 0.5 – 1.0 | Undervalued | Stock may be cheap relative to its growth rate. |
| 1.0 – 1.5 | Fairly Valued | Price reflects the growth rate. A reasonable entry point. |
| 1.5 – 2.0 | Slightly Overvalued | Paying a premium for growth. Acceptable for high-quality companies. |
| > 2.0 | Overvalued | Price far exceeds growth. May be priced for perfection. |
Understanding the PEG Ratio
Peter Lynch, one of the most successful fund managers in history, popularized a simple rule: "The P/E ratio of any company that's fairly priced will equal its growth rate." This is the PEG ratio in a nutshell.
The formula: PEG = P/E Ratio ÷ Earnings Growth Rate
A company with a P/E of 25 and a growth rate of 25% has a PEG of 1.0, fairly valued. The same company at a P/E of 15 would have a PEG of 0.6, potentially undervalued. At a P/E of 50, the PEG would be 2.0, potentially overvalued.
PEG in Practice
- PEG < 1.0: You're paying less for growth than the market implies, a potential bargain.
- PEG = 1.0: Fair value: price matches growth expectations.
- PEG > 1.5: You're paying a premium for growth. The company needs to deliver exceptional results to justify this multiple.
The PEG ratio is just one lens. For a comprehensive analysis, our fair value calculator blends PEG with three other valuation models (DCF, Graham Number, and DDM) to give you a weighted composite estimate.
PEG Ratio Calculator FAQ
What is the PEG ratio?
The PEG (Price/Earnings-to-Growth) ratio adjusts the P/E ratio by the company's earnings growth rate. It's calculated as P/E ratio divided by the annual earnings growth rate. A PEG of 1 means the stock's valuation is in line with its growth: you're paying a fair price for the growth you're getting.
What is a good PEG ratio?
A PEG below 1.0 generally indicates the stock may be undervalued relative to its growth rate. A PEG of 1.0 suggests fair value, and above 1.5 may indicate overvaluation. However, very low PEG ratios (below 0.5) may signal risk: the market might be discounting future growth for a reason, such as industry disruption or management issues.
Why is PEG better than P/E?
P/E alone doesn't account for growth. A company with a P/E of 40 growing at 40% per year (PEG = 1) is actually cheaper than a company with a P/E of 15 growing at 5% (PEG = 3). PEG normalizes valuation by growth, making comparisons across different growth rates more meaningful.
What growth rate should I use?
Use the expected earnings growth rate for the next 3-5 years. Analyst consensus estimates are a common starting point. You can find them on financial data sites. Be conservative: if analysts estimate 20% growth, you might use 15% to build in a margin of safety. Past growth rates can be misleading if the company's growth is accelerating or decelerating.
Who invented the PEG ratio?
The PEG ratio was popularized by Peter Lynch, the legendary manager of the Fidelity Magellan Fund, who averaged 29% annual returns from 1977 to 1990. In his book 'One Up on Wall Street,' Lynch wrote that a fairly priced company will have a P/E ratio equal to its growth rate, which is the PEG = 1 rule.
What are the limitations of the PEG ratio?
PEG doesn't work well for companies with no earnings (negative EPS), very low growth (PEG becomes inflated), or cyclical companies where growth is highly variable. It also ignores dividends, balance sheet strength, and cash flow quality. Use it as one tool among many, not a standalone valuation method.