PEG Ratio Calculator — Price/Earnings-to-Growth
The PEG ratio adjusts the P/E multiple for earnings growth — Peter Lynch's benchmark for whether a stock's price is fair relative to its growth rate. Enter a P/E ratio and expected annual EPS growth rate to get an instant growth-adjusted valuation signal.
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P/E ÷ Growth Rate (%) • Fair value benchmark: 1.0 (Peter Lynch)
- 1
P/E ratio
25 - 2
EPS growth rate
15 % - 3
PEG ratio
25 ÷ 15 = 1.67P/E divided by the annual EPS growth rate in percent — fair value benchmark is 1.0.
How does this calculator work?
PEG = P/E ÷ EPS Growth Rate (%). Peter Lynch's fair value benchmark is 1.0 — below 1 may indicate undervaluation, above 1 suggests growth is priced in. Enter the P/E ratio (or stock price + EPS) and expected annual earnings growth to get an instant growth-adjusted valuation signal. Best applied to profitable companies with consistent positive earnings.
Formula
How this is calculated
The PEG (Price/Earnings-to-Growth) ratio was popularised by Peter Lynch in his 1989 book "One Up on Wall Street" as a way to correct the P/E ratio's blindness to growth. A pure P/E of 40× looks expensive until you discover the company is growing earnings at 40% per year — a PEG of 1.0 in that case, which Lynch called fair value. Dividing the P/E by the annual EPS growth rate produces a single number that can be compared across companies with different growth rates: below 1 suggests undervaluation, above 1 suggests the market is pricing in more growth than the company may deliver.
The choice of growth rate matters enormously. Trailing five-year EPS growth is factual and avoids analyst optimism but ignores acceleration or deceleration. The consensus forward growth rate (from analyst estimates) reflects current expectations but can be wildly wrong in cyclical industries or during earnings inflections. Using both and comparing the resulting PEGs gives a range rather than a single figure. Some analysts also compute the forward PEG by replacing trailing EPS with next-year's consensus estimate in the P/E before dividing by the long-run growth rate.
PEG has important limitations. It becomes meaningless or misleading for companies with negative EPS (loss-makers), near-zero growth (where any P/E divided by a small number inflates PEG), extreme cyclicality (where EPS reverts to the mean), or very high capital intensity (where growth requires lots of reinvestment that EPS does not capture). Treat a low PEG as a hypothesis to investigate — not a buy signal — alongside balance-sheet quality, cash flow, and competitive dynamics.
Frequently asked questions
Peter Lynch's rule of thumb is that a PEG of 1.0 represents fair value: you pay one multiple point for each percentage point of expected earnings growth. Below 1 is considered potentially undervalued; above 1 suggests growth is already priced in. In practice, acceptable PEG levels vary by sector — technology investors may accept 1.5–2 for high-conviction secular growth stories, while value investors target below 0.75.
Both have trade-offs. Historical 5-year EPS growth is factual and avoids analyst optimism bias, but past growth may not persist. Forward consensus estimates reflect current business expectations and can price in structural changes, but analysts tend to be systematically over-optimistic. A conservative approach is to use the lower of the two; computing PEG with both gives you a range rather than a false single estimate.
Yes, if either EPS or the growth rate is negative, producing a meaningless negative PEG that cannot be interpreted as cheap or expensive. The metric also breaks down for companies with near-zero EPS or near-zero growth, where tiny denominators produce extreme ratios. Restrict PEG analysis to companies with consistently positive and growing earnings in the 5–50% annual range for the most reliable signals.
Also known as
TG we-Calculate Editorial Team. (2026). PEG Ratio Calculator — Price/Earnings-to-Growth [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/peg-ratio-calculator
TG we-Calculate Editorial Team. "PEG Ratio Calculator — Price/Earnings-to-Growth." TG we-Calculate. 2026. https://we-calculate.com/calculator/peg-ratio-calculator.
TG we-Calculate Editorial Team, "PEG Ratio Calculator — Price/Earnings-to-Growth," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/peg-ratio-calculator
@misc{wecalculate_peg_ratio_calculator, title = {PEG Ratio Calculator — Price/Earnings-to-Growth}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/peg-ratio-calculator}}, year = {2026}, note = {TG we-Calculate} }
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