Enter a company's stock price, earnings per share (EPS), and expected EPS growth rate to calculate the PEG Ratio (Price/Earnings-to-Growth). You'll get the P/E ratio, PEG ratio, and a valuation signal telling you whether the stock appears undervalued, fairly valued, or overvalued relative to its growth expectations.
PEG Ratio
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P/E Ratio
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Valuation Signal
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Expected EPS Growth Rate
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The PEG ratio (Price/Earnings-to-Growth ratio) is a valuation metric that adjusts a company's P/E ratio by its expected earnings growth rate. It gives investors a more complete picture of a stock's value than the P/E ratio alone, since it factors in how fast the company is expected to grow.
The PEG ratio is calculated using the formula: PEG Ratio = P/E Ratio ÷ Expected EPS Growth Rate. First, divide the stock price by earnings per share to get the P/E ratio. Then divide that result by the expected annual EPS growth rate (expressed as a percentage, e.g., 15 not 0.15).
A PEG ratio below 1.0x is generally considered to indicate an undervalued stock relative to its growth. A PEG ratio of exactly 1.0x suggests the stock is fairly valued. A PEG ratio above 1.0x may indicate the stock is overvalued, meaning investors are paying a premium beyond what the growth rate justifies.
The P/E ratio compares a stock's price to its current earnings, but it ignores future growth. The PEG ratio improves on this by dividing the P/E ratio by the expected earnings growth rate, making it easier to compare companies with different growth profiles on a more equal footing.
The PEG ratio is most useful for growth-oriented companies with positive and predictable earnings. It is less reliable for cyclical companies, early-stage startups with no earnings, or businesses with highly unpredictable growth. It also becomes less meaningful when the growth rate used is too speculative or short-term.
Most analysts use the expected annual EPS growth rate over the next 3–5 years, often sourced from consensus analyst estimates. Some investors use the trailing (historical) growth rate instead. The choice can significantly impact the resulting PEG ratio, so it's worth being consistent when comparing multiple stocks.
The PEG ratio is widely used by retail investors, portfolio managers, equity analysts, and financial advisors to evaluate whether a growth stock is priced fairly relative to its earnings trajectory. It's particularly popular in fundamental analysis and stock screening.
The PEG ratio relies heavily on growth rate estimates, which are inherently uncertain. It does not account for debt levels, dividend yields, cash flows, or macroeconomic conditions. Different sources may use different time horizons for the growth rate, making cross-source comparisons tricky. Always use the PEG ratio alongside other valuation metrics for a complete analysis.