PEG Ratio Calculator
Work out a stock’s PEG ratio, the price/earnings-to-growth ratio that adjusts the P/E for how fast earnings are expected to grow. Enter a share price and EPS (or a P/E ratio directly), set the growth rate yourself or derive it from return on equity, and optionally add the dividend yield to get the dividend-adjusted PEGY ratio.
Formula
Worked example
A stock at $150 with $5 EPS has a P/E of 150 ÷ 5 = 30. If earnings grow 20% a year, the PEG is 30 ÷ 20 = 1.5. With a 2% dividend yield, the PEGY is 30 ÷ (20 + 2) = 1.36, a touch friendlier because it credits the income.
What the PEG ratio measures
The PEG ratio, or price/earnings-to-growth ratio, takes a stock’s P/E ratio and divides it by the expected annual earnings growth rate. The P/E alone tells you how many dollars you pay per dollar of earnings, but it makes fast-growing companies look expensive next to slow ones. By folding in growth, PEG puts companies with different growth rates on a more even footing, so a high P/E backed by high growth can still be reasonable. The convention is to enter the growth rate as a whole number, so 20% growth is written as 20, not 0.20.
How to read the result
A PEG of 1 is often treated as the fair-value benchmark: the price you pay matches the growth you expect. A PEG below 1 can flag a stock the market may be underpricing relative to its growth, while a PEG above 1, and especially above 2, suggests you are paying a premium that depends on the growth actually materializing. These bands are rules of thumb, not hard rules. PEG is extremely sensitive to the growth estimate you plug in: a generous forecast shrinks the PEG and can make almost any stock look cheap, so always sanity-check where the growth number comes from and compare the PEG against industry peers.
Deriving growth from ROE and retention
If you do not have an analyst growth forecast handy, you can estimate the sustainable growth rate from the company’s own returns. The sustainable growth rate is return on equity multiplied by the earnings retention rate, where retention is one minus the dividend payout ratio. A company earning 25% on equity that keeps 80% of its profits can fund roughly 25% times 0.80 = 20% growth a year from internal sources. Switch the growth selector to the ROE method and the calculator works this out for you, then divides the P/E by that figure to give the PEG. This keeps the growth assumption grounded in the firm’s economics rather than a hopeful headline number.
The PEGY ratio for dividend payers
The plain PEG ignores dividends, which penalizes mature companies that return cash to shareholders instead of plowing every dollar back into growth. Peter Lynch popularized the PEGY ratio to fix this: it divides the P/E by the sum of the earnings growth rate and the dividend yield. Turn on the dividend toggle and enter the yield to see both numbers side by side. A stock that looks borderline on PEG can look clearly reasonable on PEGY once its income is counted, so the two together give a fuller picture for income and total-return investors. As with PEG, the result is only as reliable as the growth and yield you feed it.
PEG ratio interpretation guide
| PEG ratio | Common reading | Signal |
|---|---|---|
| Below 1.0 | Growth may be underpriced | Undervalued |
| About 1.0 | Price matches expected growth | Fairly valued |
| 1.0 to 2.0 | Paying a premium for growth | Pricey |
| Above 2.0 | Priced for high growth to be delivered | Overvalued |
Common rules of thumb. Always compare against sector peers rather than reading these bands in isolation.
Frequently asked questions
What is a good PEG ratio?
A PEG of around 1 is widely seen as fair value, where the price roughly matches expected earnings growth. A PEG below 1 may indicate the market is underpricing the growth, while a PEG well above 1 suggests the stock is expensive relative to its growth. These are guidelines, not guarantees.
How do you calculate the PEG ratio?
Divide the P/E ratio by the expected annual EPS growth rate entered as a whole number. The P/E is the share price divided by earnings per share. For example, a P/E of 30 with 20% growth gives a PEG of 30 ÷ 20 = 1.5.
What is the PEGY ratio and how is it different?
The PEGY ratio adds the dividend yield to the growth rate before dividing the P/E, so it credits companies that pay dividends. The formula is P/E divided by (growth rate plus dividend yield). A P/E of 30 with 20% growth and a 2% yield gives a PEGY of 30 ÷ 22 = 1.36, lower than the plain PEG of 1.5.
How can I estimate the growth rate from ROE?
Use the sustainable growth rate: return on equity multiplied by the earnings retention rate (one minus the dividend payout ratio). A 25% ROE with 80% retention implies about 20% growth. This calculator can derive growth this way when you pick the ROE method, which is handy when you have no analyst forecast.
Should I use trailing or forward earnings?
Either works, but be consistent. A forward PEG uses next year’s estimated EPS and a forward growth rate, which is more about expectations. A trailing PEG uses the last twelve months of earnings. Mixing a trailing P/E with a forward growth rate is common but blends two time frames.