PEG Ratio Calculator
Calculate the PEG ratio to determine if a stock is fairly valued, overvalued, or undervalued. The PEG ratio combines P/E ratio with earnings growth for a more complete valuation.
Current market price per share
Trailing 12-month earnings per share
Projected earnings growth rate (CAGR)
What is the PEG ratio and why is it important?
The PEG ratio (Price/Earnings to Growth) combines a stock's price-to-earnings ratio with its earnings growth rate. It provides a more complete valuation than P/E alone by factoring in growth. A PEG of 1.0 is considered fairly valued, below 1.0 suggests undervaluation, and above 1.0 suggests overvaluation. However, this varies by industry - tech stocks often trade above 1.0 while utilities may be undervalued above 0.5.
What is a good PEG ratio?
Generally: PEG < 1.0 = potentially undervalued (buy signal), PEG = 1.0 = fairly valued, PEG > 1.0 = potentially overvalued. However, context matters: growth stocks may justify higher PEGs (1.5-2.0) due to future potential, while mature companies should have lower PEGs (0.5-1.0). Compare companies within the same industry for accurate assessment.
Should I use trailing or forward PEG?
Trailing PEG uses past 12-month EPS and is more objective but may not reflect future performance. Forward PEG uses expected next 12-month EPS and is more predictive but depends on accurate earnings forecasts. Many investors use a blend of both for a complete picture. For stable, mature companies, trailing PEG is often sufficient. For high-growth companies, forward PEG provides better insight.
What are the limitations of PEG ratio?
Limitations include: 1) Growth rates are estimates and can be wrong, 2) Doesn't account for differences in risk between companies, 3) Negative earnings make PEG undefined, 4) Different accounting methods can distort EPS, 5) Industry differences make cross-sector comparisons problematic, 6) Very high growth rates can produce artificially low PEGs. Always use PEG with other metrics like P/E, debt levels, and cash flow.