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The PEG ratio adjusts the P/E ratio for a company's expected earnings growth rate, aiming to answer a sharper question than P/E alone: is this valuation reasonable given how fast the company is actually expected to grow?
How it works
Enter the P/E ratio and the expected annual earnings growth rate (as a plain percentage number, not a decimal), and the calculator applies PEG = P/E Ratio ÷ Earnings Growth Rate.
- Enter p/E ratio.
- Enter expected annual earnings growth rate (%).
- Click Calculate to see your results.
Examples
A common rule-of-thumb check
A stock with a P/E of 20 and an expected 10% annual earnings growth rate has a PEG ratio of 2.0 — by the commonly cited rule of thumb that a PEG near 1.0 suggests fair value, this looks relatively expensive for its growth rate.
Who should use it
- Screening growth stocks for reasonable valuation relative to expected growth.
- Investment analysis and equity research.
Industry applications
- Investment analysis and equity research
- Personal and retail investing
Advantages
- Adjusts the widely-used P/E ratio for growth, addressing one of P/E's biggest blind spots.
- Simple, quick calculation once you have a P/E ratio and growth estimate.
Limitations
- Entirely dependent on the accuracy of the growth-rate forecast used, which is inherently uncertain.
Common mistakes to avoid
- Entering the growth rate as a decimal (0.10) instead of a percentage number (10) — this tool expects a plain percentage value.
- Treating PEG as a precise, standalone valuation verdict rather than a rough screening tool alongside other analysis.
Best practices
- Use PEG as one screening signal among several, not a standalone buy/sell decision on its own.
- Be skeptical of growth-rate forecasts, especially aggressive ones — PEG is only as reliable as the growth estimate feeding it.
Tips
- Use the P/E Ratio Calculator first if you need to compute P/E from share price and EPS before finding the PEG ratio.