Answer first
What this calculator tells you
Calculate the PEG ratio by dividing the P/E ratio by expected earnings growth. Judge whether a high P/E is backed by growth, using a growth estimate you have tested. Formula: PEG = P/E ÷ expected annual earnings growth rate (in percent). At the worked-example inputs, the PEG ratio is 1.67×. Holding every other input steady, moving price-to-earnings ratio from 20 to 30 moves the result from 1.33× to 2.00×.
Transparent method
The formula
Judge whether a high P/E is backed by growth, using a growth estimate you have tested.
Worked example
Example inputs
How to interpret the result
The PEG ratio adjusts a P/E for growth by dividing one by the other. A P/E of 25 looks rich on its own, but with 15 percent expected earnings growth it works out to about 1.7, and a P/E of 15 would equal a PEG of exactly 1. The output beside it shows that reference P/E, so you can see how far the current multiple sits from it.
At the worked-example inputs the PEG ratio is 1.67×. It rises with price-to-earnings ratio and falls as expected annual earnings growth increases.
Investment returns are uncertain; taxes, fees, volatility and cash-flow timing can materially change results.
Before you rely on it
What to check
Question the growth number. It is a forecast, and a PEG built from an optimistic estimate looks better than the stock deserves.
The common error
Where people go wrong with PEG ratio calculator
Treating a PEG of 1 as a rule that separates cheap from dear. It is a rough convention, and it breaks down for slow-growth firms and for growth rates that cannot last.
Sensitivity evidence
How price-to-earnings ratio changes the PEG ratio
Holding every other input at the worked-example value, moving price-to-earnings ratio from 20 to 30 moves the PEG ratio from 1.33× to 2.00×: a spread of 0.67×, or 40% of the worked-example result.
| Price-to-earnings ratio | PEG ratio | P/E that would give a PEG of 1 |
|---|---|---|
| 20 | 1.33× | 15 |
| 23 | 1.53× | 15 |
| 25worked example | 1.67× | 15 |
| 28 | 1.87× | 15 |
| 30 | 2.00× | 15 |
Every input, tested
Which input moves the PEG ratio most
Of the 2 inputs, expected annual earnings growth moves the PEG ratio most (0.45× across the range tested) and price-to-earnings ratio moves it least (0.33×).
| Input | Tested from | To | PEG ratio at each end | Swing |
|---|---|---|---|---|
| Expected annual earnings growth | 13.0% | 17.0% | 1.92× to 1.47× | 0.45× (27%) |
| Price-to-earnings ratio | 23 | 28 | 1.53× to 1.87× | 0.33× (20%) |
Two variables at once
PEG ratio by price-to-earnings ratio and expected annual earnings growth
Across the grid the PEG ratio runs from 1.05× to 2.73×. Moving price-to-earnings ratio from 20 to 30 shifts it by 0.67× at the middle column, and moving expected annual earnings growth from 11.0% to 19.0% shifts it by 0.96× at the middle row, so expected annual earnings growth is the bigger lever here.
| Price-to-earnings ratio \ Expected annual earnings growth | 11.0% | 15.0% | 19.0% |
|---|---|---|---|
| 20 | 1.82× | 1.33× | 1.05× |
| 23 | 2.09× | 1.53× | 1.21× |
| 25 | 2.27× | 1.67× | 1.32× |
| 28 | 2.55× | 1.87× | 1.47× |
| 30 | 2.73× | 2.00× | 1.58× |
The highlighted cell is the worked example: 1.67×.
Step by step
The worked example, input by input
| Input | Value used | What it means |
|---|---|---|
| Price-to-earnings ratio | 25 | Enter the price-to-earnings ratio used in this calculation. |
| Expected annual earnings growth | 15.0% | An analyst or your own estimate of yearly earnings growth. It is a forecast, not a fact. |
| PEG ratio | 1.67× | |
| P/E that would give a PEG of 1 | 15 | |
Inputs, definitions and assumptions
Price-to-earnings ratio
Enter the price-to-earnings ratio used in this calculation. The prefilled worked-example value is 25.
Expected annual earnings growth
An analyst or your own estimate of yearly earnings growth. It is a forecast, not a fact. The prefilled worked-example value is 15.0%.
How to use this calculator
- 1Verify the inputs. Gather price-to-earnings ratio and expected annual earnings growth from your own documents; the prefilled values are examples.
- 2Save a baseline. The worked example puts the PEG ratio at 1.67×. Store your own version of it as Scenario A.
- 3Test one change. Start with expected annual earnings growth, the input with the biggest effect here: moving expected annual earnings growth from 13.0% to 17.0% takes the PEG ratio from 1.92× to 1.47×, a swing of 27% of the worked-example figure.
- 4Check the extremes. At half the example expected annual earnings growth (7.5%) the PEG ratio is 3.33×; at double (30.0%) it is 0.83×.
People also ask
Frequently asked questions
How do you calculate PEG ratio?
PEG = P/E ÷ expected annual earnings growth rate (in percent). Enter expected annual earnings growth in percent (15 means 15%). At the worked-example inputs the PEG ratio is 1.67×.
What does the PEG ratio result mean?
Judge whether a high P/E is backed by growth, using a growth estimate you have tested. At the worked-example inputs the PEG ratio is 1.67×. It rises with price-to-earnings ratio and falls as expected annual earnings growth increases.
How much does price-to-earnings ratio change the PEG ratio?
Holding every other input at the worked-example value, moving price-to-earnings ratio from 20 to 30 moves the PEG ratio from 1.33× to 2.00×, a spread of 0.67×.
What are the limits of this PEG ratio calculator?
Investment returns are uncertain; taxes, fees, volatility and cash-flow timing can materially change results. The tables on this page test price-to-earnings ratio only from 20 to 30; a value outside that range is not tabulated here.
Which input moves the PEG ratio most in the PEG ratio calculator?
Ranked by how far each moves the PEG ratio across the range tested: expected annual earnings growth (0.45×, 27%) and price-to-earnings ratio (0.33×, 20%).
If I double expected annual earnings growth in the PEG ratio calculator, does the PEG ratio double?
Doubling it from 15.0% to 30.0% takes the PEG ratio from 1.67× to 0.83×, which is 0.50 times the worked-example figure. So it falls instead of rising. Halving it to 7.5% gives 3.33×.
How much does expected annual earnings growth matter in the PEG ratio calculator?
The worked example uses 15.0%. Holding every other input at its worked-example value, moving expected annual earnings growth from 13.0% to 17.0% takes the PEG ratio from 1.92× to 1.47×, a swing of 27% of the worked-example figure.
Which inputs change the p/e that would give a PEG of 1 in the PEG ratio calculator?
At the worked-example inputs it is 15. Expected annual earnings growth takes it from 13 to 17.
How much should I invest each month?
Enough to reach your goal at a realistic return, after an emergency reserve exists and high-rate debt is addressed. Working backwards from the goal produces a defensible figure. Picking a round number does not. Test the result at a conservative return as well as an optimistic one and see whether the plan survives.
Sources and evidence
Free Calculators Online is independent and is not affiliated with or endorsed by the source organizations. Educational estimates only.