The PEG ratio (price/earnings-to-growth) takes the P/E ratio and divides it by the company's expected earnings growth rate. It exists to fix P/E's biggest blind spot: a high P/E isn't necessarily expensive if the company is growing fast.
PEG = P/E ÷ annual earnings growth rate (in %). Example (illustrative): a stock with a P/E of 30 growing earnings 30% a year has a PEG of 30 ÷ 30 = 1.0. A second stock with a P/E of 15 growing at just 5% has a PEG of 15 ÷ 5 = 3.0 — on P/E alone the second looks cheaper, but on PEG the first is the better value for its growth.
A PEG around 1.0 is often treated as fairly priced for its growth, below 1 as potentially cheap, and well above 1 as expensive. These are rough guides — the number is only as reliable as the growth estimate behind it.
P/E tells you how much you pay per $1 of current earnings; PEG adjusts that for how fast earnings are expected to grow. A high P/E can still have a reasonable PEG if growth is fast enough.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.