PEG Ratio
P/E ratio divided by the expected annual EPS growth rate. Adjusts valuation for growth — a PEG near 1.0 is often seen as fair value.
Formula
PEG = (P/E Ratio) / Annual EPS Growth %
The PEG ratio (Price/Earnings-to-Growth) refines the P/E by dividing it by the company's expected annual earnings growth rate, expressed as a whole number percentage. A stock with a P/E of 30 growing earnings at 30% has a PEG of 1.0 — often cited as roughly fair value.
PEG below 1.0 can suggest the stock is undervalued relative to its growth; above 1.0 implies the market is paying a premium for that growth. Like all ratios, it is most useful for comparisons within the same sector and most vulnerable to the accuracy of earnings growth forecasts.
Use PEG as a sanity check on high-multiple growth stocks, not as a standalone buy/sell signal. Analyst growth estimates for the next 1–3 years are the standard input — long-range estimates are too speculative to anchor a valuation.
Example
Stock trades at $100 with trailing EPS of $4.00 → P/E = 25×. Consensus 3-year EPS growth = 20% per year. PEG = 25 / 20 = 1.25. The stock trades at a modest premium to its growth rate — typical for a quality compounder.
Related Terms
Earnings Report
A company's official quarterly disclosure of revenue, earnings, margins, and guidance. The biggest recurring event in single-stock trading.
BeginnerEPS (Earnings Per Share)
Net income divided by shares outstanding. EPS is the single most-watched earnings metric for valuing a stock.
BeginnerForward Guidance
Management's public forecast for future revenue, earnings, or margins. Often moves the stock more than the reported quarter itself.
IntermediateMarket Capitalization
The total market value of a company's outstanding shares. Market Cap = Share Price × Shares Outstanding.
BeginnerP/E Ratio
Share price divided by earnings per share. The P/E tells you how many dollars investors pay for each dollar of earnings.
Beginner