P/E & PEG Ratio Calculator
Evaluate if a stock is overvalued or undervalued using P/E and PEG ratios.
Understanding PEG Ratio
What is PEG Ratio?
The PEG (Price/Earnings-to-Growth) ratio improves on the P/E ratio by factoring in a company's earnings growth rate. It was popularized by Peter Lynch. A PEG of 1 means the stock is fairly valued relative to its growth. Below 1 suggests undervaluation; above 2 suggests overvaluation.
PEG Ratio Formula
PEG = P/E Ratio ÷ Earnings Growth Rate (%)
PEG Ratio Ratings
Below 1
Stock may be undervalued relative to its growth potential. Worth investigating further.
1 to 1.5
Fairly valued. Price is in line with growth expectations.
Above 2
Stock may be overvalued. Price exceeds what growth can justify.
Frequently Asked Questions
What is a good P/E ratio?
There is no universal "good" P/E ratio. It depends on the industry, growth rate, and market conditions. A P/E below 15 is generally considered low, while above 25 is high. Compare the P/E ratio with the company's historical average and industry peers.
What does PEG ratio tell me?
The PEG ratio adjusts P/E for growth. PEG < 1 suggests the stock is undervalued relative to its growth. PEG = 1 is fair value. PEG > 2 suggests overvaluation.
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What is this tool?
PE PEG Calculator evaluates whether a stock is overvalued or undervalued by combining the Price-to-Earnings ratio with earnings growth. PEG = PE Ratio / Earnings Growth Rate. A PEG below 1 suggests the stock may be undervalued relative to growth, while above 1 suggests it may be overvalued. Warren Buffett considers PEG one of the most important stock valuation metrics.
How to use
- 1
Enter PE ratio
Input the stock's current Price-to-Earnings ratio.
- 2
Enter earnings growth rate
Input the expected annual earnings growth rate percentage.
- 3
Evaluate valuation
See PEG ratio and whether the stock appears overvalued or undervalued.
Frequently Asked Questions
What is a good PEG ratio?
PEG < 1 suggests undervalued. PEG = 1 means fairly valued. PEG > 1 suggests overvalued. However, PEG works best for stable growth companies. For cyclical or declining businesses, PEG can be misleading. Always use it alongside other metrics.
Why is PEG better than PE ratio alone?
PE ratio alone doesn't account for growth. A stock with PE 50 may look expensive, but if earnings grow 50% annually (PEG = 1), it's fairly valued. PE of 10 may look cheap, but with only 5% growth (PEG = 2), it may actually be expensive.
Should I use trailing or forward P/E with PEG?
Forward P/E (based on estimated future earnings) is generally preferred for PEG calculation because it aligns with the forward-looking growth rate. Trailing P/E uses past earnings which may not reflect the company's current trajectory. However, forward estimates can be optimistic. Some analysts use a blend of both or focus on normalized earnings to smooth out cyclical variations.
How do I calculate the PEG ratio?
First compute the P/E ratio = Stock Price / Earnings Per Share (EPS). Then divide by the expected annual earnings growth rate in percent: PEG = P/E / Growth Rate. Example: a stock at $150 with EPS of $5.50 has a P/E of about 27.3; with 25% expected growth, PEG ≈ 1.09. The calculator also applies the Buffett rule of thumb: PEG below 1 suggests undervalued, between 1 and 2 fair, and above 2 overvalued, and derives a fair value at PEG = 2 of EPS × Growth Rate × 2.
How do I use the PEG ratio to compare growth stocks?
Rank candidates by PEG using the same growth measure (e.g. forward EPS growth for 3 years). All else equal, a lower PEG means you pay less for each unit of growth. Compare only within the same industry - growth benchmarks differ widely across sectors.