PEG Ratio — Smart Financial Analysis
Calculate PEG ratio (P/E ÷ Growth Rate) for growth-adjusted stock valuation. Peter Lynch's key buy signal: PEG < 1.0.
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The Price/Earnings to Growth ratio measures a stock's value relative to its earnings growth. PEG < 1.0 suggests undervaluation, 1.0-1.5 is fair value, > 2.0 may indicate overvaluation. Use projected 3-5 year EPS growth from analyst consensus. Assumes linear growth, doesn't account for debt, ignores capital intensity, and struggles with negative earnings or declining growth.
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Why: The Price/Earnings to Growth ratio measures a stock's value relative to its earnings growth. PEG = P/E ÷ Growth Rate. A PEG of 1.0 means the stock is fairly valued relative...
How: Enter Stock Price ($), Earnings Per Share ($), Earnings Growth Rate (%) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
Run the calculator when you are ready.
📋 Quick Examples — Click to Load
📊 P/E, PEG & Industry Comparison
P/E ratio, PEG ratio, Industry PEG comparison
📈 PEG at Different Growth Rates
PEG ratio at growth rates from 5% to 40%
🍩 Stock Price Decomposition
Earnings value vs growth premium
📊 Your PEG vs Industry vs Lynch
Your PEG vs industry PEG vs Lynch threshold (1.0)
PEG Ratio
potentially overvalued
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
PEG Ratio analysis is used by millions of people worldwide to make better financial decisions.
— Industry Data
Financial literacy can increase household wealth by up to 25% over a lifetime.
— NBER Research
The average American makes 35,000 financial decisions per year—many can be optimized with calculators.
— Cornell University
Globally, only 33% of adults are financially literate, making tools like this essential.
— S&P Global
The PEG ratio, popularized by legendary investor Peter Lynch, remains one of the most powerful tools for growth-adjusted stock valuation. Lynch, who achieved a 29.2% average annual return over 13 years at Fidelity Magellan, considered a PEG below 1.0 to be a key indicator of an undervalued stock. The metric normalizes P/E ratios by expected growth, making comparisons across sectors more meaningful.
Sources: Morningstar, S&P Global, Bloomberg, "One Up on Wall Street" (Peter Lynch).
Key Takeaways
- • PEG = P/E ÷ Earnings Growth Rate — normalizes valuation for growth
- • PEG < 1.0 suggests undervaluation; PEG > 2.0 suggests overvaluation
- • P/E = Stock Price ÷ EPS — the building block of PEG
- • Use 3-5 year forward growth estimates from analyst consensus
Did You Know?
How Does the PEG Ratio Work?
Step 1: Calculate P/E
P/E Ratio = Stock Price ÷ Earnings Per Share. Example: $100 stock with $5 EPS = 20x P/E.
Step 2: Get Growth Rate
Use projected 3-5 year EPS growth (%). Analyst consensus or company guidance. Example: 15% annual growth.
Step 3: Divide P/E by Growth
PEG = P/E ÷ Growth Rate. Example: 20 ÷ 15 = 1.33 (fairly valued). PEG < 1.0 = undervalued.
Expert Tips
PEG Ratio Interpretation
| PEG Range | Interpretation |
|---|---|
| PEG < 0.75 | Potentially undervalued |
| 0.75 - 1.25 | Fairly valued |
| 1.25 - 2.0 | Slightly overvalued |
| PEG > 2.0 | Potentially overvalued |
Frequently Asked Questions
What is the PEG ratio?
The Price/Earnings to Growth ratio measures a stock's value relative to its earnings growth. PEG = P/E ÷ Growth Rate. A PEG of 1.0 means the stock is fairly valued relative to growth.
What is a good PEG ratio?
PEG < 1.0 suggests undervaluation, 1.0-1.5 is fair value, > 2.0 may indicate overvaluation. Peter Lynch considered PEG < 1.0 a key buy signal.
How is PEG better than P/E alone?
P/E ignores growth. A stock with 50 P/E and 50% growth (PEG=1.0) may be cheaper than one with 15 P/E and 5% growth (PEG=3.0). PEG normalizes for growth.
What growth rate should I use?
Use projected 3-5 year EPS growth from analyst consensus. Forward growth estimates are more useful than trailing. Be skeptical of growth rates above 25%.
What are PEG ratio limitations?
Assumes linear growth, doesn't account for debt, ignores capital intensity, and struggles with negative earnings or declining growth. Best for profitable, growing companies.
Who invented the PEG ratio?
Popularized by Peter Lynch in "One Up on Wall Street" (1989). Lynch used PEG as a primary screening tool at Fidelity Magellan Fund, achieving 29.2% annual returns over 13 years.
Key Statistics
Official Data Sources
⚠️ Disclaimer: This calculator is for educational purposes only. PEG ratio has limitations: it assumes linear growth, ignores debt and capital intensity, and fails for negative earnings. Past performance does not guarantee future returns. This is not financial advice. Consult a licensed financial advisor for investment decisions.
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