What is the PEG ratio?

The PEG (Price/Earnings-to-Growth) ratio is a stock valuation metric calculated by dividing a company's P/E ratio by its expected EPS growth rate (expressed as a percentage). Formula: PEG = P/E Ratio / EPS Growth Rate (%). It was popularized by legendary fund manager Peter Lynch as a way to assess whether a stock's P/E ratio is justified by its growth rate.

What is a good PEG ratio?

Peter Lynch considered a PEG ratio below 1.0× as the classic definition of a growth stock bargain — you are paying less P/E than the company's growth rate warrants. PEG below 0.5× is considered deep value; 0.5–1.0× is undervalued; 1.0–1.5× is fairly valued; 1.5–2.0× is a slight premium; 2.0–3.0× is a high premium; and above 3.0× is considered very expensive. Sector context matters — technology companies often trade at PEG 2–3× while financials are closer to 0.8–1.5×.

How do you calculate PEG ratio?

PEG ratio is calculated as: PEG = P/E Ratio / EPS Growth Rate (%). For example, if a stock has a P/E of 25× and its expected EPS growth rate is 15%/year, then PEG = 25 / 15 = 1.67×. You can use our PEG Ratio Calculator which accepts either the stock price + EPS (it calculates P/E for you) or directly enter the P/E ratio along with the growth rate.

What is the Peter Lynch fair value formula using PEG?

Peter Lynch's fair value formula states that a stock is fairly valued when its P/E ratio equals its earnings growth rate (PEG = 1). This gives the fair value price: Fair Value = EPS × EPS Growth Rate (%). For example, if a company has EPS of $5 and grows at 20%/year, its Peter Lynch fair value is $5 × 20 = $100. If trading above $100, the PEG exceeds 1×; if below, the PEG is below 1× (potentially undervalued).

What is the difference between PEG and PEGY?

PEGY is a dividend-adjusted version of PEG introduced by Peter Lynch for income-paying growth stocks. Formula: PEGY = P/E / (EPS Growth Rate + Dividend Yield). The PEGY fair value price = EPS × (Growth Rate + Dividend Yield). For a company with a 2% dividend yield and 13% growth rate, PEGY uses 15% instead of 13% — making dividend-paying stocks look relatively cheaper than standard PEG suggests.

What growth rate should I use for PEG calculation?

The most common approach is to use the consensus analyst 3–5 year EPS growth rate estimate, available on financial sites like Yahoo Finance, Morningstar, or Seeking Alpha. You can also use the company's own guidance, a historical growth rate, or your own projection. The key is consistency: if using a forward EPS estimate, use a forward growth rate. PEG is only as reliable as the growth estimate — analyst forecasts are systematically optimistic, so stress-testing with lower growth assumptions is advisable.

What are the limitations of the PEG ratio?

The PEG ratio has several important limitations: (1) It is only as reliable as the EPS growth estimate, which can be highly inaccurate; (2) It breaks down for slow-growth stocks (utilities, consumer staples) and pre-profit companies with negative earnings; (3) It ignores balance sheet quality, debt levels, and capital intensity; (4) It can be manipulated by using an unusually high short-term growth estimate; (5) GAAP vs non-GAAP EPS differences can significantly change the calculated PEG. Always use PEG alongside other metrics like P/B, EV/EBITDA, and free cash flow yield.

How does the PEG ratio compare to the P/E ratio?

The P/E ratio tells you how much investors pay per dollar of earnings, but gives no context about whether that price is justified by growth. Two companies can have the same P/E but very different growth rates, making PEG the superior metric for comparing growth stocks. For example, a P/E of 30× looks expensive in isolation, but if the company grows at 30%/year, its PEG is 1.0× — fair value by Lynch's standard. PEG adds the critical growth dimension that P/E alone lacks.

What does a negative PEG ratio mean?

A negative PEG ratio occurs in two scenarios: (1) Negative P/E — the company has negative earnings (net loss), making P/E meaningless; (2) Negative EPS growth rate — the company's earnings are expected to decline. In both cases, PEG cannot be interpreted in the traditional sense. Do not treat a negative PEG as 'deeply undervalued' — it is simply not applicable. Use other metrics such as P/Sales, EV/EBITDA, or EV/Sales for companies without positive, growing earnings.

PEG Ratio Calculator Pro — Price/Earnings-to-Growth, Fair Value, Compare & Historical

Company

Ticker / Company Name

Input Mode

Price + EPS P/E Directly

Current Stock Price

Earnings Per Share (EPS)

TTM EPS or forward EPS — be consistent with growth rate type

Growth Rate

EPS Growth Rate (next 3–5 yr estimate)

%/yr

Use analyst consensus estimate or your own projection

Sector (for benchmarking)

Price/Earnings-to-Growth (PEG) Ratio

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Enter P/E and growth rate to calculate

P/E Ratio

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EPS Growth Rate

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Fair Value (PEG 1×)

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Upside / Downside

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Sector Avg PEG

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vs Sector Avg

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Valuation Signal

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Required Growth (PEG 1×)

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PEG Context — Current Price vs Fair Value vs Sector Benchmark

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PEG Ratio — Formula

PEG = P/E Ratio / EPS Growth Rate (%)

Where:
  P/E  = Market Price / EPS
  EPS Growth = annual EPS growth rate
               (next 3–5 yr estimate)

Fair Value (Peter Lynch):
  Price = EPS × Growth Rate (at PEG = 1×)

Fair Value at any PEG:
  Price = EPS × PEG Target × Growth Rate

PEGY (dividend-adjusted):
  PEGY = P/E / (Growth Rate + Dividend Yield)
  PEGY Fair Value = EPS × (Growth + Div Yield)

A PEG of 1.0× means you are paying exactly one dollar of P/E for every one percentage point of growth. Peter Lynch, who coined the metric, considered PEG below 1.0× the core definition of a growth stock bargain.

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PEG Ratio — General Interpretation

PEG Range	Signal	What It Often Means
< 0.5×	Deep Value	Exceptionally cheap vs growth — or growth overestimated
0.5× – 1.0×	Undervalued	Market underpricing the growth — Lynch's sweet spot
1.0× – 1.5×	Fairly Valued	Growth priced in at reasonable premium
1.5× – 2.0×	Slight Premium	Paying up for quality or defensibility
2.0× – 3.0×	High Premium	Growth must sustain or accelerate to justify
> 3.0×	Very Expensive	Priced for perfection; high risk of de-rating

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PEG by Sector — Typical Ranges

Sector	Typical PEG	Why
Financials / Banks	0.8× – 1.5×	Low P/E; cyclical growth
Energy	0.5× – 1.5×	Commodity-driven cyclicality
Materials	0.8× – 1.5×	Cyclical, asset-intensive
Consumer Disc.	1.0× – 2.0×	Moderate growth, brand value
Industrials	1.0× – 2.0×	Steady compounders
Communication	1.0× – 2.0×	Network effects, subscriber growth
Healthcare	1.5× – 2.5×	R&D optionality, patent pipeline
Technology	1.5× – 3.0×	High margins, scalable models
Real Estate	1.5× – 2.5×	Stable income, moderate growth
Consumer Staples	2.0× – 3.0×	Slow growth, premium paid for stability
Utilities	2.0× – 3.5×	Very slow growth, defensive premium

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Key Limitations of PEG Ratio

Growth estimate is the weakest link: PEG is only as reliable as the EPS growth rate you plug in. Analyst consensus estimates are systematically optimistic by 20–30%. A PEG of 0.9× built on a 25% growth estimate that materializes at 15% is actually a PEG of 1.5× in hindsight. Always stress-test the growth assumption.
Breaks down for slow-growth and negative-growth companies: A company with 2% EPS growth and P/E of 20 has a PEG of 10× — "overvalued" by PEG but potentially a fine bond-like investment. Utilities, consumer staples, and REITs often look overvalued by PEG despite being appropriately priced. PEG was designed for growth stocks, not income stocks.
Negative P/E makes PEG meaningless: Companies with negative earnings have no valid P/E ratio and therefore no valid PEG. Do not attempt to interpret a negative PEG as if it were meaningful. Use EV/Sales, P/S, or EV/EBITDA instead.
Ignores balance sheet quality: PEG says nothing about debt levels, cash position, or the capital required to sustain growth. A company growing at 20% by taking on massive debt may have a low PEG but a dangerous risk profile. Always check the balance sheet alongside PEG.
Short-term growth vs. long-term sustainability: PEG favors companies with temporarily high growth estimates that may not be maintained. A company growing at 40%/yr for two years followed by 8%/yr is very different from a company compounding at 20%/yr sustainably — yet the near-term PEG may favor the burst grower.

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When PEG Is Most Useful

Comparing growth stocks within the same sector: PEG is most powerful as a relative tool. Two technology companies with similar business models but different P/E ratios and growth rates — PEG immediately tells you which is pricing its growth more efficiently.
Identifying mispriced high-growth stocks: When the market assigns a high P/E to a stock but the growth rate is even higher, PEG can reveal that the stock is actually cheap relative to its growth trajectory. This was Peter Lynch's original insight.
Setting price targets and fair value anchors: The Fair Value tab's scenario table gives concrete price targets at different PEG assumptions — a more structured way to think about upside than arbitrary price targets.
Quick screening filter: A PEG below 1.5× is a useful first filter for further due diligence. It narrows a large universe of stocks to those where the market is not dramatically overpricing growth.

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PEG vs Other Valuation Ratios

Ratio	Best For	PEG Advantage
P/E Ratio	Earnings-focused	PEG adds growth context P/E lacks
P/B Ratio	Asset-intensive firms	PEG better for growth companies
EV/EBITDA	Capital structure comparisons	PEG is simpler for growth screens
P/S Ratio	Pre-profit companies	PEG needs earnings — P/S doesn't
PEGY	Dividend-paying growth stocks	PEGY = PEG adjusted for yield
EV/Growth	Capital-intensive growth	PEG ignores debt, EV/Growth doesn't

What each tab calculates

PEG Ratio

Calculates PEG = P/E ÷ EPS Growth Rate from either stock price + EPS, or P/E directly. Shows fair value at PEG 1×, upside/downside, sector benchmark comparison, valuation signal, and required growth for PEG=1. Bar chart compares current price vs fair value vs sector-implied price.

Fair Value

Calculates fair value prices across five PEG scenarios (0.5× to 2.5×) using Price = EPS × PEG × Growth. Also computes PEGY fair value (dividend-adjusted), upside/downside from current price, required growth rate at current price, and implied fair P/E. Scenario bar chart with optional current price line.

Compare

Side-by-side PEG comparison for up to 6 companies. Each company takes a P/E and growth rate. Results are sorted lowest to highest PEG with color-coded bars. Always shows a PEG=1.0× baseline reference line. Optional sector average line. Summary shows best-value PEG, most expensive, and average.

Historical

Plots PEG over time from pasted historical data. Calculates average, min, max, median, standard deviation, % change first-to-last, and latest vs historical average. Line chart always includes a PEG=1.0× fair value reference, optional sector benchmark, and historical average line. Demo: Apple 2019–2024.

Interpret

Static reference guide: PEG formula (including PEGY and fair value formula), 6-level interpretation table, PEG typical ranges for 11 sectors, 5 key limitations of PEG, when PEG is most useful (growth stocks, screening, price targets), and PEG vs other valuation ratios comparison.