PEG Ratio Calculator

Calculate Price/Earnings to Growth ratio for comprehensive stock valuation and growth analysis.

Evaluate stocks more accurately by considering both valuation (P/E ratio) and growth potential. The PEG ratio helps identify undervalued growth stocks and avoid overpaying for high-growth companies.

Examples

Click on any example to load it into the calculator.

High Growth Technology Stock

High Growth Technology Stock

A technology company with strong earnings growth potential and moderate P/E ratio.

Stock Price: $85.5

EPS: $2.15

Growth Rate: 25%

Mature Value Stock

Mature Value Stock

An established company with steady but slower growth and low P/E ratio.

Stock Price: $45

EPS: $3.75

Growth Rate: 8.5%

Potentially Overvalued Stock

Potentially Overvalued Stock

A stock with high P/E ratio but moderate growth, indicating possible overvaluation.

Stock Price: $120

EPS: $2.8

Growth Rate: 12%

Undervalued Growth Stock

Undervalued Growth Stock

A company with strong growth but relatively low P/E ratio, suggesting undervaluation.

Stock Price: $65

EPS: $4.2

Growth Rate: 18%

Other Titles
Understanding PEG Ratio Calculator: A Comprehensive Guide
Master the art of growth stock valuation using the PEG ratio. Learn how to identify undervalued growth opportunities and avoid overpaying for high-growth companies.

What is the PEG Ratio Calculator?

  • Core Concepts and Definitions
  • Why PEG Ratio Matters
  • Advantages Over P/E Ratio
The PEG Ratio Calculator is a sophisticated financial analysis tool that combines traditional valuation metrics with growth expectations to provide a more comprehensive assessment of stock value. Unlike the simple P/E ratio, which only considers current earnings relative to price, the PEG ratio incorporates future growth potential, making it particularly valuable for evaluating growth stocks and companies with varying growth trajectories.
The Evolution from P/E to PEG Ratio
The traditional P/E ratio has been a cornerstone of stock valuation for decades, but it has significant limitations when evaluating growth companies. A high P/E ratio might indicate overvaluation, but it could also reflect strong growth expectations. The PEG ratio, developed by Peter Lynch, addresses this limitation by normalizing the P/E ratio against earnings growth, providing a more balanced view of valuation relative to growth potential.
Mathematical Foundation and Interpretation
The PEG ratio formula is elegantly simple: PEG Ratio = P/E Ratio ÷ Earnings Growth Rate. A PEG ratio of 1.0 indicates that the stock's P/E ratio equals its growth rate, suggesting fair valuation. PEG ratios below 1.0 typically indicate undervaluation, while ratios above 1.0 may suggest overvaluation. However, interpretation requires context—industry averages, company quality, and growth sustainability all influence what constitutes an attractive PEG ratio.
When to Use PEG Ratio Analysis
PEG ratio analysis is most valuable for growth stocks, companies in expansion phases, and industries where growth rates vary significantly. It's particularly useful for comparing companies within the same sector, as it accounts for different growth trajectories. However, it's less effective for mature companies with minimal growth, cyclical companies with volatile earnings, or companies with negative earnings growth rates.

PEG Ratio Interpretation Guide:

  • PEG < 0.5: Potentially undervalued, strong growth relative to price
  • PEG 0.5-1.0: Fairly valued, growth matches price expectations
  • PEG 1.0-1.5: Slightly overvalued, but may be justified by quality
  • PEG > 1.5: Potentially overvalued, growth doesn't justify premium

Step-by-Step Guide to Using the PEG Calculator

  • Data Collection and Sources
  • Input Methodology
  • Result Interpretation
Accurate PEG ratio calculation requires precise data collection, thoughtful input methodology, and nuanced interpretation. Follow this systematic approach to maximize the tool's effectiveness in your investment analysis.
1. Gather Reliable Financial Data
Start with the most recent stock price from reliable financial sources. For earnings per share, use the most recent annual EPS figure from the company's financial statements or reputable financial websites. Ensure you're using consistent time periods—if using annual EPS, pair it with annual growth rate expectations. Cross-reference data from multiple sources to ensure accuracy.
2. Determine Earnings Growth Rate
The earnings growth rate is the most critical and challenging input. Use analyst consensus estimates when available, as they represent professional expectations. Alternatively, calculate historical growth rates over 3-5 years for established companies, or use company guidance for newer firms. Be conservative in your estimates—overly optimistic growth projections can lead to poor investment decisions.
3. Input Data with Precision
Enter the stock price with two decimal places for accuracy. Input EPS as reported, typically with two decimal places. For growth rate, enter as a percentage without the % symbol (e.g., 15.5 for 15.5%). Double-check all inputs before calculation, as small errors can significantly impact the PEG ratio and your investment decision.
4. Analyze Results in Context
Interpret your PEG ratio against relevant benchmarks. Compare to industry averages, historical company PEG ratios, and competitor PEG ratios. Consider the company's quality, competitive position, and growth sustainability. A low PEG ratio might indicate opportunity, but it could also signal problems if growth expectations are unrealistic or the company faces significant challenges.

Data Sources and Best Practices:

  • Stock Price: Use closing price from major exchanges or real-time data
  • EPS: Annual EPS from company 10-K filings or financial websites
  • Growth Rate: Analyst consensus estimates from Bloomberg, FactSet, or Yahoo Finance
  • Industry Comparison: Compare PEG ratios within the same sector for context

Real-World Applications and Investment Strategies

  • Growth Stock Screening
  • Portfolio Construction
  • Risk Management
The PEG ratio calculator transforms from a simple computational tool into a strategic investment asset when integrated into comprehensive analysis frameworks and portfolio management strategies.
Growth Stock Screening and Selection
Use PEG ratios to screen for attractive growth opportunities across your investment universe. Set PEG ratio thresholds based on your risk tolerance and investment style—conservative investors might focus on PEG ratios below 0.8, while growth-oriented investors might consider ratios up to 1.2. Combine PEG analysis with other metrics like return on equity, debt levels, and competitive positioning for comprehensive evaluation.
Portfolio Construction and Allocation
PEG ratios help balance growth and value within your portfolio. Allocate more capital to stocks with attractive PEG ratios while maintaining diversification across sectors and market caps. Consider creating a PEG-based scoring system that ranks stocks by their relative attractiveness, helping you prioritize investment opportunities when capital is limited.
Risk Management and Position Sizing
Use PEG ratios to inform position sizing decisions. Stocks with very low PEG ratios might warrant larger positions, while those with high ratios might be sized smaller or avoided entirely. However, always consider other risk factors—a low PEG ratio doesn't guarantee success if the underlying business is fundamentally flawed or faces significant challenges.

Investment Strategy Framework:

  • Conservative Growth: Focus on PEG ratios 0.5-0.8 with established companies
  • Moderate Growth: Target PEG ratios 0.8-1.2 with proven growth track records
  • Aggressive Growth: Consider PEG ratios up to 1.5 for high-quality growth stories
  • Avoid: PEG ratios above 2.0 unless exceptional circumstances justify premium

Common Misconceptions and Limitations

  • PEG Ratio Pitfalls
  • When PEG Fails
  • Complementary Analysis
While the PEG ratio is a valuable tool, understanding its limitations and common misconceptions is crucial for effective investment decision-making.
Myth: Lower PEG Always Means Better Investment
This misconception can lead to poor investment decisions. A low PEG ratio might indicate undervaluation, but it could also signal that growth expectations are unrealistic or that the company faces significant challenges. Always investigate why a stock has a low PEG ratio—is it truly undervalued, or are there fundamental problems that justify the low valuation?
Limitations of PEG Ratio Analysis
PEG ratios are less effective for companies with negative earnings growth, cyclical companies with volatile earnings patterns, or companies in turnaround situations. They also don't account for differences in business quality, competitive position, or industry dynamics. Additionally, PEG ratios based on short-term growth projections may not reflect long-term value creation potential.
The Importance of Complementary Analysis
PEG ratio analysis should never be used in isolation. Combine it with fundamental analysis of business quality, competitive position, financial strength, and management capability. Consider qualitative factors like industry trends, regulatory environment, and technological disruption. Use multiple valuation methods—DCF analysis, asset-based valuation, and comparable company analysis—to build a comprehensive investment thesis.

When PEG Analysis May Be Misleading:

  • Cyclical Companies: Earnings growth may not be sustainable through cycles
  • Turnaround Situations: Historical growth may not reflect future potential
  • High Debt Companies: Growth may not translate to shareholder value
  • Regulatory Risk: Growth projections may not account for regulatory changes

Mathematical Derivation and Advanced Applications

  • Formula Variations
  • Statistical Analysis
  • Predictive Modeling
Advanced PEG ratio applications involve statistical analysis, trend identification, and predictive modeling that provide deeper investment insights beyond simple ratio comparison.
Enhanced PEG Ratio Calculations
While the basic PEG ratio uses current P/E and expected growth, advanced variations consider forward P/E ratios, multi-year growth rates, and growth quality metrics. Some analysts use weighted average growth rates over multiple periods or adjust for growth sustainability factors. Forward PEG ratios use projected earnings and growth rates, providing a more forward-looking perspective on valuation.
Statistical Analysis and Benchmarking
Statistical analysis of PEG ratios across sectors, market caps, and time periods reveals valuable patterns. Calculate sector-specific PEG ratio averages and standard deviations to identify outliers. Historical PEG ratio analysis for individual companies helps identify valuation trends and potential mean reversion opportunities. Correlation analysis with other metrics like return on equity and profit margins provides additional insights.
Predictive Modeling and Backtesting
Advanced investors use PEG ratio data in predictive models to forecast stock performance. Backtesting strategies based on PEG ratio thresholds helps validate the effectiveness of different approaches. Machine learning models can incorporate PEG ratios along with other factors to predict future returns, though such models require careful validation and ongoing monitoring.

Advanced PEG Applications:

  • Forward PEG: Uses projected earnings and growth for future-oriented analysis
  • Sector-Adjusted PEG: Normalizes PEG ratios against sector averages
  • Quality-Adjusted PEG: Incorporates business quality metrics into valuation
  • Risk-Adjusted PEG: Adjusts for company-specific risk factors and volatility