What Is PEG Ratio? Growth-Adjusted Valuation Explained

The PEG ratio (Price/Earnings-to-Growth ratio) improves on the P/E ratio by factoring in a stock's earnings growth rate. It tells you whether a stock is expensive or cheap relative to how fast the company is growing.

PEG Ratio = P/E Ratio ÷ Annual EPS Growth Rate (%)

Example: A stock with a P/E of 30 and 30% earnings growth has a PEG of 1.0 — considered fairly valued. A stock with P/E of 30 but only 10% growth has a PEG of 3.0 — considered expensive for its growth rate.

How to Interpret PEG

• PEG below 1.0: Potentially undervalued — you're paying less than the growth rate would justify.
• PEG of 1.0: Fairly valued — price matches the growth rate.
• PEG above 2.0: Potentially overvalued — you're paying a premium over the growth rate.

Forward PEG vs. Trailing PEG

Forward PEG uses analyst estimates for future earnings growth, which is more useful since stocks are priced on future expectations. Trailing PEG uses historical growth, which can be distorted by one-time events. StocksRankings uses forward PEG in its PEG rankings.

PEG Limitations

PEG depends on earnings growth estimates, which can be wrong. It doesn't work for companies with negative earnings or very low growth. It's most useful for growth-oriented investors evaluating tech, healthcare, and consumer stocks.

See the full PEG ratio rankings for S&P 500 stocks. Read next: What is P/E Ratio? · What is Earnings Yield?

Calculate PEG With Consistent Units

Divide a positive trailing P/E by expected annual EPS growth stated as a whole-number percentage. At 24× earnings and 12% projected growth, PEG is 24 ÷ 12 = 2, not 24 ÷ 0.12. The growth horizon matters: a one-year rebound from weak earnings is different from durable expansion over several years. Check each data provider's definition before comparing ratios.

What Is a Good PEG?

A PEG below 1 can suggest growth is inexpensive, but only when the forecast is credible. Imagine one company has P/E 18 and projected growth 30%, yielding PEG 0.6, while another has P/E 22 and projected growth 11%, yielding PEG 2. If the first company's growth is a one-off recovery and the second can compound for years, the lower PEG may not represent better value. These ranges are screening conventions, not intrinsic values.

When PEG Is Misleading

PEG is not useful with negative earnings or zero or negative growth. It becomes unstable near zero growth: changing a forecast from 1% to 2% halves the ratio without changing the share price. Forecasts can also become outdated after an acquisition, a product launch or an earnings miss. The metric ignores debt, dividends, the cost of funding growth and the reliability of cash flow.

Use the Ranking as a Shortlist

Verify the earnings growth forecast behind each result. Ask what happens if that forecast is cut in half, compare operating cash flow with reported profit and review debt and dilution. The ranking combines trailing P/E with forward EPS growth; a low result is a prompt for independent research, not a recommendation.

Forecast Units and Growth Horizon

Growth in the denominator must be stated as a whole-number percentage: a P/E of 24 divided by 12% expected annual growth gives PEG 2 when the growth input is 12, not 0.12. Different providers use different horizons. Some use next year's expected EPS growth, others a forecast averaged over several years or historical results. The ranking here combines trailing P/E with forward earnings growth. Do not assume another site's ratio can be compared directly without checking the period and formula.

A company that earned very little last year can show spectacular percentage growth on a rebound. That does not mean its profits can compound at the same pace for years. Compare the earnings base with several prior periods and ask how long the forecast growth could last. An investor who buys only because a one-year projection makes PEG less than 1 may be disappointed when the projection normalizes. The duration and reliability of growth matter as much as the headline percentage.

Two Companies With Different Growth Prospects

Imagine Company A has a P/E of 18 and expected EPS growth of 30%, giving PEG 0.6. Company B has P/E 22 and expected growth of 11%, giving PEG 2. If A is recovering from a single weak year but B can compound its earnings for a decade, A's lower PEG does not prove it is a better investment. The formula does not describe the quality of either balance sheet, how much capital growth requires or how much cash can eventually reach shareholders.

A rule of thumb treats below 1 as attractive, around 1 as reasonable and above 2 as expensive relative to forecast growth. These are screening labels rather than fair-value guarantees. A durable business with predictable margins may deserve a higher ratio; a company with highly uncertain forecasts may deserve a discount even when the printed PEG is low. Compare peers in similar industries and verify the source of growth. Price alone cannot tell you whether the forecast is plausible.

When the Formula Stops Helping

With zero or negative growth, dividing P/E by growth becomes undefined or misleading. If earnings are negative, a conventional positive P/E does not exist either. Even small positive growth makes PEG unstable: revising a forecast from 1% to 2% halves the PEG without changing the stock price. A very low ratio caused by an unusually large rebound should be investigated rather than automatically ranked above a business with moderate, repeatable growth.

Analyst forecasts can change after a product launch, regulatory event, acquisition or disappointing results. Debt and dilution can also alter what shareholders ultimately receive, while dividends are not part of PEG. Check whether reported EPS growth corresponds to growth in operating cash flow. A company may improve EPS with repurchases or accounting changes even if its underlying business is not improving. None of these issues appears in the formula's two inputs.

Research Beyond the Lowest PEG List

For each candidate in the ranking, verify its earnings, the forecast period, its cash flow and its debt. Test an alternative scenario where expected growth is cut in half. At P/E 30 and projected growth 30%, PEG equals 1; at 15% growth, the same P/E implies PEG 2. The stock might reprice even before analysts update their estimates. Treat a low PEG as an invitation to study the assumptions, not an instruction to buy.

Pair the ranking with the P/E guide to understand the actual multiple paid and with cash-flow analysis to check the sustainability of earnings. Rankings and consensus estimates update on different schedules, so consult the displayed timestamp. A current reading can help build a shortlist; it cannot replace independent research or account for your personal risk tolerance.

Reading the Current Ranking Responsibly

The embedded list below is a snapshot of the same source used by the full ranking. It is sorted from the lowest available reading and shows only five names to keep the guide readable. The list can change as prices move, companies report earnings, or source data is refreshed. A missing company does not mean its metric is unfavorable: it may be outside the ranking universe or may lack enough usable data to calculate a comparable figure. Likewise, a company at the top is not necessarily the best investment. Rankings measure one attribute, not the whole business.

Use the timestamp to distinguish the age of the underlying dataset from the time you opened this page. A page you visit today can contain source data that was last updated earlier. Do not interpret an older PEG forecast, P/E based on past results or an RSI reading from a completed session as a guaranteed live market quote. Before acting, verify the metric against the latest price and filings, and check for earnings announcements or corporate actions since the last update. Numbers in this guide are educational examples unless explicitly labeled as current ranking data.

StocksRankings links each ticker to its individual stock page so you can investigate more than a single ratio. Review the company's results, its competitors and the risks behind the apparent bargain or signal. Consider how much the result would change if earnings, estimates or market conditions differed from your initial assumptions. No metric in isolation can establish fair value, predict a price reversal or replace a plan for handling losses. The full ranking offers more candidates; it does not remove the need to assess each one on its own merits.