How to use the PEG ratio calculator
- Choose your starting point. If you already have a P/E ratio, enter it directly. Otherwise, enter the share price and earnings per share and the calculator works out the P/E.
- Enter the expected EPS growth per year. Analysts’ estimates for the next three to five years are the usual source. Type 16 for 16%.
- Add the dividend yield if the company pays one. The calculator then also shows the dividend-adjusted PEG (PEGY).
The chart shows how the PEG falls as the growth estimate rises, and the table lists the PEG at growth rates from 5% to 30% for the same P/E.
The formula
PEGY = P/E ÷ (Expected growth (%) + Dividend yield (%))P/E is the share price divided by earnings per share. Growth and yield are entered as whole numbers, so 16% growth is 16, not 0.16. Both formulas need positive earnings and positive growth.
Because the PEG compares two numbers, it can be read either way: a PEG of 1 means the P/E equals the growth rate. At a P/E of 24, that would take growth of 24.0% a year.
A worked example
Company A trades at a P/E of 24. Analysts expect its earnings to grow 16% a year over the next five years, and it pays a 1.5% dividend yield.
The PEG ratio is 1.50: investors pay 1.50 P/E points for each point of growth. To bring the PEG down to 1, the company would need growth of 24.0%, or the P/E would have to fall to 16.0.
Including the dividend, the PEGY is 1.37.
If the growth estimate were cut to 10%, the PEG would jump to 2.40 with no change in the share price. That sensitivity to one forecast is the main thing to keep in mind with this ratio.
How to read the PEG ratio
The idea behind the PEG is that a high P/E is fine if growth is high enough to justify it. Peter Lynch popularized the rule of thumb that a fairly priced stock has a P/E roughly equal to its growth rate, which gives a PEG of 1. Read the bands loosely:
- Below 1: cheap for the expected growth, if the estimate holds.
- Around 1: price and growth roughly in line.
- 1 to 2: investors are paying a premium, common for high-quality companies with durable growth.
- Above 2: priced well ahead of growth, or the growth estimate is unusually low.
Typical PEG levels also vary by industry and by the level of interest rates, so comparisons work best among similar companies measured the same way.
Comparing companies with different growth
The PEG is most useful when two stocks have very different P/E ratios:
| Company | P/E | Growth | Dividend yield | PEG | PEGY |
|---|---|---|---|---|---|
| A: steady grower | 24 | 16% | 1.5% | 1.50 | 1.37 |
| B: utility | 12 | 6% | 4% | 2.00 | 1.20 |
| C: fast grower | 45 | 30% | none | 1.50 | — |
| D: low P/E, low growth | 10 | 4% | none | 2.50 | — |
Company D has the lowest P/E but the highest PEG: its earnings barely grow. Company C has a P/E of 45, yet its PEG of 1.50 matches Company A’s. Company B looks expensive on the plain PEG, but most of its return comes from the dividend, and the PEGY of 1.20 reflects that. This is why the PEG understates slow-growing, high-yield stocks, and why the dividend-adjusted version exists.
What this calculator does not include
- The reliability of the estimate. Long-term growth forecasts are often wrong, and they tend to be most optimistic for the fastest growers.
- How long growth lasts. A PEG treats 20% growth for two years the same as 20% for ten. A DCF model handles duration explicitly.
- Risk and debt. Two companies with the same PEG can have very different balance sheets.
- Earnings quality. One-off items distort the P/E, and so the PEG.