PEG Ratio Calculator
P/E adjusted for expected earnings growth
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What the defaults give
A P/E of 20 with 15% expected earnings growth gives a PEG of 1.33.
Around 1.0 is traditionally treated as fairly priced for the growth rate; 1.33 means the market is paying a modest premium.
The formula
PEG = P/E ÷ annual EPS growth rate (%)
It divides the price paid for each dollar of current earnings by the rate at which those earnings are expected to grow. A company on a high multiple can still be reasonable if it grows fast enough; a low-multiple company can be expensive if it is not growing at all.
Worked examples
P/E 20, growth 15% → 1.33
P/E 10, growth 15% → 0.67
P/E 40, growth 15% → 2.67
P/E 20, growth 7.5% → 2.67
P/E 20, growth 30% → 0.67
Doubling the multiple doubles the PEG; doubling the growth rate halves it. The ratio is therefore very sensitive to the growth input, which is also its weakness — a growth forecast is an estimate, and a small change in it moves the verdict a long way.
Reading the bands
Under 1 is traditionally read as cheap relative to growth, 1 to 2 as fair, and above 2 as expensive. Those bands come from Peter Lynch's writing and from decades of screening habits, not from a model. They also assume the growth rate is sustainable, which is where most of the mistakes happen: a 30% growth rate that lasts two years and then fades to 5% will not justify a PEG of 0.67 calculated on the first two years.
When the ratio misleads
It breaks down for companies with no earnings, because P/E is undefined or negative, and for cyclicals at the top of a cycle, whose earnings are temporarily high and whose growth is about to turn negative. It also ignores debt, cash flow and capital intensity: two companies with identical PEGs can carry very different balance-sheet risk.
Use a forward P/E with a multi-year growth estimate, and check the growth figure against history. A PEG built on an aggressive analyst forecast is not comparable with one built on a five-year realised rate. High growth rates above roughly 25% rarely persist for long, so a low PEG at that speed is fragile.
Finally, PEG says nothing about quality. A cheap PEG on a business with no moat and no cash generation is a value trap dressed as a growth stock.
Frequently Asked Questions
What does a PEG of 1.33 mean?
A P/E of 20 against 15% growth. The market is paying slightly more than the growth rate would traditionally justify, where 1.0 is fair.
What is a good PEG ratio?
Under 1 is traditionally cheap, 1 to 2 fair and above 2 expensive. The bands are conventions, not rules, and they depend on the growth estimate being realistic.
Should I use forward or trailing growth?
Forward growth matches the idea of paying for future earnings, but it is an estimate. Check it against the realised multi-year rate to see whether it is credible.
Why does PEG fail for some companies?
It needs positive earnings and a growth rate. Startups with losses, cyclicals at a peak and companies with shrinking earnings all break the ratio.
Does a low PEG mean the stock is cheap?
Not on its own. It can reflect an over-optimistic growth forecast, or a business with debt and no moat. Verify growth and cash flow before treating it as a bargain.
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