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This calculator uses compound interest formulas, historical market return assumptions, and standard financial planning methodologies to project your investment growth over time.

What rate of return should I assume?

A balanced portfolio has historically returned 7-10% annually before inflation (about 5-7% after). Conservative estimates use 6-7%, aggressive portfolios may assume 8-10%. Lower is safer for planning.

Should I invest or pay off debt first?

Pay off high-interest debt (above 7%) first. For lower-rate debt like mortgages, investing often makes more sense mathematically, but being debt-free has psychological benefits too.

PEG Ratio Calculator

PEG ratio factors in growth for better valuation than P/E alone.

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Built by Abiot Y. Derbie, PhD — Postdoctoral Research Fellow. Quantitative researcher specializing in statistical modeling and data-driven decision systems.

Mathematical models independently verified by Eskezeia Y. Dessie, PhD (Indiana University School of Medicine) and Armin Allahverdy, PhD (LinkedIn) — Data Scientist, Machine Learning & Data Mining.

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This calculator is for informational and educational purposes only. Results are estimates based on the information you provide and standard financial formulas. This is not financial advice. Consult a qualified financial advisor for decisions specific to your situation. Full Disclaimer

Things to Know

Essential concepts for understanding your results

Formula

What is the PEG ratio?

PEG = P/E Ratio ÷ Earnings Growth Rate. A stock with 30 P/E and 25% expected growth: PEG = 1.2. PEG below 1.0: potentially undervalued relative to growth. PEG of 1.0: fairly valued. PEG above 2.0: potentially overvalued. PEG adjusts for the primary weakness of P/E — it answers whether a high P/E is justified by high growth. A 40 P/E stock growing at 40% annually (PEG 1.0) is actually cheaper than a 15 P/E stock growing at 5% (PEG 3.0).

Limitations

When does PEG mislead?

PEG fails when: growth estimates are unreliable (early-stage companies, cyclical businesses), the company has negative earnings (P/E is meaningless), or growth rates are very low (a 12 P/E at 3% growth gives PEG of 4.0, but the stock may still be a solid value play). PEG also ignores dividends — a 10 P/E stock with 5% growth and 4% dividend yield (PEG 2.0) may be a better investment than a 20 P/E stock with 20% growth (PEG 1.0) depending on your goals.

Best Use

How should you use PEG in practice?

Use PEG to compare growth stocks within the same sector. If two cloud software companies have PEGs of 0.8 and 1.5, the 0.8 offers better value per unit of growth. PEG is most useful for mid- and large-cap companies with 2+ years of analyst estimates. For the broadest view, combine PEG with P/E (absolute valuation), price-to-sales (revenue quality), and debt-to-equity (balance sheet health). No single metric captures the full picture.

What Is the PEG Ratio?

The PEG ratio (Price/Earnings-to-Growth) is one of the most useful valuation tools for growth stocks because it adjusts the P/E ratio for the company's expected earnings growth rate. A stock with a high P/E might look expensive — but if earnings are growing rapidly, the high P/E may be justified. The PEG ratio reveals whether you are overpaying relative to growth.

Formula: PEG = P/E Ratio ÷ Annual Earnings Growth Rate. A stock with P/E of 30 and 30% earnings growth: PEG = 1.0. A stock with P/E of 15 and 5% growth: PEG = 3.0. Despite having half the P/E, the slow-growth stock is actually more "expensive" relative to its growth — you are paying 3x the growth rate versus 1x for the faster-growing company.

The interpretation: PEG below 1.0: Potentially undervalued relative to growth — the market may be underpricing the company's growth prospects. Worth investigating further. PEG of 1.0: Fairly valued — the P/E equals the growth rate, suggesting the market price accurately reflects growth expectations. PEG above 2.0: Potentially overvalued — you are paying a premium above what growth alone justifies. May still be appropriate for companies with exceptional competitive advantages, but warrants caution.

PEG Ratio by Sector: What to Expect

Different sectors command different "normal" PEG ranges based on growth characteristics, risk, and market dynamics:

High-growth technology: PEG of 0.8-1.5 is typical. Companies growing earnings 20-40% often trade at P/E ratios of 25-50, producing PEGs near 1.0. A PEG below 0.8 in tech is rare and usually signals either a genuine bargain or deteriorating growth expectations.

Healthcare/biotech: PEG of 1.0-2.0. Growth is driven by pipeline drugs and aging demographics. Biotech companies with binary outcomes (FDA approval/rejection) may have unstable PEG calculations.

Consumer staples: PEG of 1.5-3.0. These stable, low-growth businesses (5-10% earnings growth) trade at modest P/Es of 18-25 but produce elevated PEGs because growth is slow. A PEG of 2.0 in staples is normal, not necessarily a sell signal.

Financial services: PEG of 0.8-1.5. Banks and insurers are cyclical — earnings fluctuate with interest rates and economic cycles. Use multi-year average growth rates for more stable PEG calculations.

Utilities: PEG of 2.0-4.0. Very slow growth (2-5%) with modest P/Es (12-18). Investors accept high PEGs for dividend income and stability — PEG is less useful for evaluating utilities than dividend yield and payout ratio.

How to Use PEG Ratio Correctly

Use projected growth, not historical: PEG uses forward-looking earnings growth rates — typically the analyst consensus estimate for the next 3-5 years. Historical growth may not continue. A company that grew 40% last year but is projected to grow 15% going forward has a PEG based on 15%, not 40%. Always use the forward estimate from sources like Yahoo Finance, Morningstar, or your brokerage research.

Compare PEG within the same sector: A PEG of 1.5 is cheap for a consumer staple but expensive for a high-growth tech company. Industry context matters — the "normal" PEG varies dramatically. Rank companies within their peer group by PEG to identify relative value.

Combine with other metrics: PEG does not account for debt, cash flow quality, competitive moat, or management quality. A low PEG with heavy debt may signal a value trap. Use PEG as a screening tool to identify candidates, then conduct deeper analysis on fundamentals: free cash flow, return on invested capital, debt-to-equity, and competitive positioning.

PEG limitations: Does not work for companies with negative earnings or negative growth (produces meaningless or negative PEG). Relies on analyst growth estimates, which have a wide margin of error. Ignores dividends — a company paying a 4% dividend yield with 3% growth has a PEG of 5.0+ but may be an excellent income investment. For dividend stocks, use the PEG + dividend yield variation: PEGY = P/E ÷ (Growth Rate + Dividend Yield).

Frequently Asked Questions

What is a good PEG ratio?

Below 1.0 suggests potential undervaluation relative to growth — often a buying signal. PEG of 1.0 is "fairly valued." Above 2.0 may indicate overvaluation. However, context matters: a PEG of 1.5 in consumer staples is normal, while 1.5 in high-growth tech is above average. Always compare PEG within the same industry sector for meaningful evaluation.

What is the difference between P/E and PEG?

P/E measures price relative to current earnings. PEG adjusts P/E for growth — dividing P/E by the expected earnings growth rate. A stock with 40 P/E looks expensive, but if growing 40% annually, PEG is 1.0 (fairly priced for its growth). P/E tells you what you are paying; PEG tells you whether that price is justified by growth. PEG is more useful for comparing growth stocks.

How do I calculate PEG ratio?

PEG = P/E Ratio ÷ Expected Annual Earnings Growth Rate. Example: stock at $100, EPS of $4 (P/E = 25), projected 20% annual earnings growth: PEG = 25 ÷ 20 = 1.25. Use forward consensus earnings growth estimates from financial data providers (not trailing growth). Enter any stock's P/E and growth rate above for instant PEG calculation with interpretation.

Is PEG useful for dividend stocks?

Standard PEG undervalues dividend stocks because it ignores yield. A stock with P/E of 15, 3% growth, and 4% dividend yield has a PEG of 5.0 (looks expensive) but is providing 7% total return. Use the PEGY ratio instead: P/E ÷ (Growth + Dividend Yield) = 15 ÷ (3 + 4) = 2.14 — a more accurate valuation for income-producing stocks.

Can PEG ratio be negative?

Yes — if the company has a negative P/E (losing money) or negative growth rate (declining earnings). A negative PEG is meaningless for valuation purposes. For unprofitable or declining companies, use alternative metrics: Price-to-Sales (P/S), Price-to-Book (P/B), or enterprise value to revenue (EV/Revenue). PEG is only useful for profitable, growing companies.

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