Peg Ratio Calculator

What it is and when to use it

The PEG ratio adjusts the familiar price-to-earnings multiple for how fast a company's earnings are expected to grow. A P/E of 30 looks expensive next to a P/E of 12, but if the first company is growing earnings at 30 percent a year and the second at 4 percent, the comparison changes. Dividing P/E by the growth rate puts both on a growth-adjusted footing.

Investors use PEG to screen and compare companies within the same industry, especially in growth sectors where P/E alone is misleading. This calculator takes the share price, trailing earnings per share and an expected annual growth rate, then shows PEG, P/E and earnings yield together. It is an educational tool and does not recommend buying or selling any security.

The formula and how it works

The calculator uses three related ratios:

P/E = share price / earnings per share (EPS)
PEG = P/E / expected annual EPS growth rate (in percent)
Earnings yield = EPS / share price x 100, the inverse of P/E expressed as a percentage.
The growth rate is entered as a whole percent, so 15 percent is typed as 15, not 0.15.

The reading shown is only a simple comparison to 1: below 0.95 is labelled Below 1, up to 1.05 is About 1, and anything higher is Above 1.

Worked example

Suppose a stock trades at $150 per share, earned $6.00 per share over the last twelve months, and analysts expect EPS to grow 15 percent a year. The P/E is 150 / 6 = 25.00. The PEG is 25 / 15 = 1.67.

Earnings yield is 6 / 150 x 100 = 4.00 percent. The calculator therefore shows PEG 1.67, P/E 25.00, earnings yield 4.00 percent and the label Above 1. If the growth forecast were instead 25 percent, the PEG would drop to 1.00 with the same price, which shows how sensitive the ratio is to the forecast rather than to today's price.

Common mistakes and how to interpret the result

Using a growth forecast you cannot defend: PEG is only as reliable as the growth estimate, and small changes in it swing the ratio a lot.
Comparing across industries: capital-intensive, cyclical and financial companies trade at structurally different multiples, so compare PEG within a peer group.
Mixing trailing and forward earnings: use the same EPS basis for P/E and for the growth calculation, or the ratio double counts.
Treating 1 as a magic threshold: it is a convention, not a law, and it says nothing about debt, margins or the risk of missing the forecast.

Frequently Asked Questions

What does a PEG ratio of 1 mean?

A PEG of 1 means the price-to-earnings multiple equals the expected annual earnings growth rate in percent, for example a P/E of 15 with 15 percent growth. Many textbooks treat 1 as a rough reference point where price and growth are in balance, but it is a rule of thumb, not a verdict on whether a stock is a good or bad value.

Which growth rate should I use?

Use one consistent forecast, typically the expected annual EPS growth over the next three to five years, entered as a percent. Different sources use different horizons, such as one-year, five-year or historical growth, so PEG values from different websites often disagree. State which growth figure you used when comparing companies.

Why does the calculator reject zero or negative growth?

PEG divides the P/E by the growth rate, so a zero rate is undefined and a negative rate produces a negative number that does not carry the usual interpretation. Companies with shrinking or non-positive earnings need other measures, such as price to sales or enterprise value multiples.

Is a low PEG always better?

No. A low PEG can reflect an optimistic growth forecast that fails to materialise, cyclical earnings at a peak, or a risky business. The ratio also ignores dividends, debt and the quality of earnings. Treat it as one input into research, not as a buy or sell signal, and this page does not provide investment advice.