A high P/E is not automatically expensive. Enter a P/E ratio (or a price and EPS) plus an earnings growth rate to get the PEG ratio — the number that puts fast and slow growers on the same scale.
Don’t know the P/E? Enter price and EPS instead and it will compute the P/E for you:
Answer first: the PEG ratio divides a stock’s price-to-earnings ratio by its expected earnings growth rate. It answers the question a raw P/E cannot: am I paying a fair price for this growth? A company growing earnings 40% a year can deserve a much higher P/E than one growing 5%, and PEG captures exactly that.
PEG = P/E ratio ÷ Annual earnings growth rate (%)
Example: a P/E of 30 with 25% earnings growth gives a PEG of 30 ÷ 25 = 1.2 — close to fairly valued. The same P/E of 30 with only 10% growth gives a PEG of 3.0, which signals an expensive stock.
| PEG ratio | Rough interpretation |
|---|---|
| Under 1.0 | Potentially undervalued relative to growth |
| Around 1.0 | Price roughly fair for the growth |
| 1.0 – 2.0 | Premium — check the growth is reliable |
| Over 2.0 | Expensive; a lot of growth is priced in |
The PEG ratio was popularised by legendary Fidelity manager Peter Lynch, who argued in One Up on Wall Street that “the P/E ratio of any company that’s fairly priced will equal its growth rate.” In other words, a PEG of 1.0 is the fair-value benchmark. It gave ordinary investors a quick way to compare a cheap-looking slow grower against an expensive-looking fast grower.
PEG is only as good as the growth estimate you feed it — and future growth is notoriously hard to predict. Analysts routinely over-estimate growth for exciting stocks, which makes their PEGs look deceptively cheap. Use a conservative, defensible growth rate (often the projected 3–5 year earnings growth), and treat PEG as one input among several, not a verdict.
Reality check: PEG ignores dividends, debt and the quality of growth. A dividend-adjusted PEG (PEGY) adds the dividend yield to the growth rate. Never buy a stock on PEG alone. Educational tool only — not financial advice.
Build the inputs with the P/E ratio calculator and EPS calculator, and read growth vs value investing for context.
Last updated 27 June 2026 · Written by Mustafa Bilgic. Educational only — not financial advice.
Divide the P/E ratio by the expected annual earnings growth rate (as a number, not a decimal). A P/E of 30 divided by 25% growth gives a PEG of 1.2.
A PEG below 1.0 traditionally suggests a stock may be undervalued relative to its growth, while around 1.0 is considered fair value. But the figure is only reliable if the growth estimate is realistic.
Most investors use the projected 3-to-5-year annual earnings growth rate. Be conservative, because analysts tend to over-estimate growth for popular stocks, which makes the PEG look cheaper than it really is.
The P/E ratio measures price relative to current earnings. The PEG ratio goes further by dividing the P/E by the growth rate, so it accounts for how fast those earnings are expected to grow.