Free PEG Ratio Calculator
Calculate the PEG ratio from a P/E and an expected growth rate to see whether a multiple is reasonable for the growth behind it.
A PEG between 1 and 2 is a middling reading: the price is paying a fair-to-full amount for the expected growth.
PEG is a heuristic, not a valuation. It assumes growth and risk scale together, which is often untrue. Treat a low PEG as a prompt to look closer, not a verdict.
What the PEG ratio is
The PEG ratio divides the price-to-earnings ratio by the expected annual earnings growth rate. It exists because a P/E on its own says little: a stock at 30 times earnings is not expensive if it is growing fast, and a stock at 10 times is not cheap if its earnings are shrinking. PEG puts the multiple in the context of the growth behind it, which is the question that actually matters.
How to read it
The classic rule of thumb, associated with Peter Lynch, is that a PEG near 1 suggests a multiple that is reasonable for the growth, below 1 looks cheap, and well above 1 looks expensive. A company at 30 times earnings growing at 30% has a PEG of 1; the same multiple on 10% growth gives a PEG of 3. Treat these as signposts rather than precise readings.
The limits of the PEG ratio
PEG assumes that value and growth scale in a straight line, and it ignores risk, capital intensity, and how long the growth can last. It also depends heavily on a growth estimate, and those estimates are systematically optimistic. A low PEG built on an unrealistic growth forecast is worse than useless, because it looks like a bargain. Use the PEG as a prompt to investigate the growth assumption, not as a substitute for valuing the business.
How to use this calculator
- Enter the P/E ratio and the growth rate you expect the business to sustain.
- Read the PEG against the rough bands, then stress-test the growth rate you used.
- Check the implied growth against the company's actual record before trusting a low PEG.
Related calculators
- Reverse DCF calculator — a more rigorous version of the same question: the growth the price actually assumes.
- CAGR calculator — check the growth rate against what the business has actually delivered.
Frequently asked questions
- What is the PEG ratio?
- The PEG ratio is the price-to-earnings ratio divided by the expected annual earnings growth rate, expressed in percentage points. A company with a P/E of 30 growing at 15 percent has a PEG of 2. The idea is to judge a multiple in the context of growth rather than in isolation.
- What is a good PEG ratio?
- The classic rule of thumb, popularised by Peter Lynch, is that a PEG near 1 suggests the multiple is reasonable for the growth, below 1 looks cheap, and well above 1 looks expensive. Treat these as rough signposts. The PEG is a heuristic, and the quality and durability of the growth matter more than the number.
- What are the limits of the PEG ratio?
- PEG assumes growth and value scale in a simple straight line and ignores risk, capital intensity, and how long the growth can last. It also depends heavily on a growth estimate that is often optimistic. A low PEG built on an unrealistic growth forecast is misleading, so it is best used as a prompt to investigate, not as a conclusion.
- Is a lower PEG always better?
- Not necessarily. A very low PEG can signal a bargain or a growth forecast the market does not believe. A higher PEG can be justified for a business whose growth is unusually durable and low-risk. Always check whether the growth rate in the denominator is achievable before drawing a conclusion from the ratio.
This calculator is for education and research only. It is not investment advice and it does not recommend buying or selling any security. The output depends entirely on the assumptions you enter.