PEG Ratio Calculator
Evaluate whether a high P/E stock is justified by earnings growth with this free PEG ratio calculator. Quick valuation screening for value and growth investors.
Like this tool? Help keep portfolios.tools free forever.
How the PEG Ratio Works
The PEG ratio builds on the price to earnings ratio by adding expected earnings growth into the equation. A stock may have a high P/E but if earnings are growing fast enough the valuation may still be reasonable. The PEG ratio helps you distinguish between expensive stocks that are worth it and expensive stocks that are simply overvalued. Growth investors screen for PEG near 1 before reading full financials. Forward growth estimate dominates PEG; stale trailing growth misstates fast decelerating tech names. Compare PEG within same industry; utility PEG near two differs from software near one interpretation. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds.
To calculate the PEG ratio divide the P/E ratio by the annual earnings growth rate. A PEG ratio below 1 suggests the stock is undervalued relative to its growth. A ratio near 1 is fairly valued and above 1.5 indicates overvaluation. This simple metric is widely used by growth investors as a quick valuation screen. Always cross check with cash flow quality because accounting earnings can spike temporarily. Compare PEG within same industry; utility PEG near two differs from software near one interpretation. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds. PEG ignores balance sheet risk; pair with free cash flow yield before buying.
Always cross-check with cash flow quality because accounting earnings can spike temporarily. Compare PEG within same industry; utility PEG near two differs from software near one interpretation. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds. PEG ignores balance sheet risk; pair with free cash flow yield before buying.
Use PEG Ratio Gauge whenever inputs change: after market moves, new contributions, or revised personal assumptions. Bookmark the page for quick reruns without installing software.
Step by step
- Open PEG Ratio Gauge and enter your current inputs.
- Review calculated outputs and summary tables.
- Adjust assumptions and compare scenarios side by side.
Worked example
The PEG ratio builds on the price to earnings ratio by adding expected earnings growth into the equation. Enter the sample inputs described in How it works to reproduce the scenario step by step.
Adjust one input at a time to see sensitivity. PEG Ratio Gauge updates instantly so you can stress test optimistic and conservative assumptions before acting.
When to use this calculator
Reach for PEG Ratio Gauge when evaluate whether a high p/e stock is justified by earnings growth. It suits quick what if analysis before trades, allocation changes, or plan updates.
Pair with related tools when the decision spans taxes, liquidity, or multi year projections beyond what one formula captures.
Common mistakes
Copying outputs without checking input units or stale market prices is a frequent error with PEG Ratio Gauge. Confirm tickers, percentages, and dates before acting.
Running a single baseline scenario ignores tail risks. Stress test with conservative inputs and compare against related tools listed below when the decision is material.
PEG Ratio Formula
P/E Ratio = Share Price / Earnings Per Share
PEG Ratio = P/E Ratio / Earnings Growth Rate
Interpretation: Below 1 = Undervalued, Around 1 = Fair, Above 1.5 = Overvalued
The earnings growth rate should be the expected future growth rate, typically over 3 to 5 years. Using historical growth may mislead if margins normalize or if one time items inflated past EPS. Negative or zero growth makes PEG interpretation invalid. PE twenty five with twenty percent growth yields PEG one point two five for quick growth adjusted screen.
Limitations and assumptions
The earnings growth rate should be the expected future growth rate, typically over 3 to 5 years. Using historical growth may mislead if margins normalize or if one time items inflated past EPS. Negative or zero growth makes PEG interpretation invalid. PE twenty five with twenty percent growth yields PEG one point two five for quick growth adjusted screen. PEG Ratio Gauge does not replace personalized advice. Fees, slippage, account specific rules, and behavioral constraints may change real world outcomes.
Key terms
- What is a good PEG ratio
- A PEG ratio below 1.
- Can the PEG ratio be negative
- If a company has negative earnings or negative expected growth the PEG ratio becomes negative and loses its interpretive value.
- Model assumption
- P/E alone tells you how much you pay for each dollar of earnings but ignores growth.
Compare alternatives
Use Enterprise Value Calculator for capital structure aware valuation, ROE DuPont Analysis for return drivers, and Dividend Discount Model when payouts matter more than growth. Use those calculators when peg ratio gauge alone does not capture the full decision.
Internal links on portfolios.tools help you chain calculators: run PEG Ratio Gauge first, then validate edge cases with a specialized tool from the related section below.
FAQ
What is a good PEG ratio?
A PEG ratio below 1.0 is generally considered good, indicating the stock is undervalued relative to its earnings growth. A PEG between 1.0 and 1.5 is fair. Above 1.5 suggests the stock may be overvalued. However industry context matters: high growth tech stocks often trade at higher PEG ratios when investors pay for durable recurring revenue. PE twenty five with twenty percent growth yields PEG one point two five for quick growth adjusted screen. Forward growth estimate dominates PEG; stale trailing growth misstates fast decelerating tech names.
Can the PEG ratio be negative?
If a company has negative earnings or negative expected growth the PEG ratio becomes negative and loses its interpretive value. The PEG ratio only works for companies with positive earnings and positive expected growth rates. For loss making companies use other valuation metrics like price to sales or EV to revenue. Forward growth estimate dominates PEG; stale trailing growth misstates fast decelerating tech names. Compare PEG within same industry; utility PEG near two differs from software near one interpretation. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds.
How is PEG different from P/E alone?
P/E alone tells you how much you pay for each dollar of earnings but ignores growth. A stock with a P/E of 30 might seem expensive until you see earnings are growing at 40 percent annually. The PEG ratio incorporates growth to give a more complete picture of valuation. It does not replace discounted cash flow when growth is lumpy or capital intensive. Compare PEG within same industry; utility PEG near two differs from software near one interpretation. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds.
What growth rate should I use for PEG?
Most analysts use the expected earnings growth rate over the next 3 to 5 years. Consensus analyst estimates are a common source. You can also use historical growth rates as a starting point but be aware past growth does not guarantee future performance. Trim outliers from one time tax or asset sale gains before trusting historical CAGR. Negative or zero growth breaks simple PEG; use multi stage models for turnarounds. PEG ignores balance sheet risk; pair with free cash flow yield before buying.
Does PEG work for all industries?
PEG works best for growth companies in technology, consumer, and healthcare sectors. It is less useful for utilities, real estate, financials, and commodity based industries where earnings growth is not the primary driver of value. Use industry specific metrics alongside PEG such as price to book for banks or NAV for REITs. PEG ignores balance sheet risk; pair with free cash flow yield before buying. PE twenty five with twenty percent growth yields PEG one point two five for quick growth adjusted screen.
How do I use the PEG Ratio Calculator on a phone or tablet?
Yes. PEG Ratio Gauge runs entirely in your mobile browser with the same formulas as desktop. Optional localStorage may remember inputs on your device when enabled in browser settings.
Where is my data stored when I use PEG Ratio Gauge?
Nowhere on our servers. Calculations execute locally in your browser. Optional localStorage saves form fields on your device only and never transmits portfolio numbers over the network.
Should I rely on PEG Ratio Gauge for tax or legal decisions?
No. PEG Ratio Gauge provides educational math only. Tax law, account rules, and personal circumstances vary. Consult a qualified tax or legal professional before transactions with material consequences.
Related Tools
Use Enterprise Value Calculator for capital structure aware valuation, ROE DuPont Analysis for return drivers, and Dividend Discount Model when payouts matter more than growth. Forward growth estimate dominates PEG; stale trailing growth misstates fast decelerating tech names. Compare PEG within same industry; utility PEG near two differs from software near one interpretation.