PEG Ratio Calculator
Price/Earnings to Growth — Growth Stock Valuation
Calculate PEG ratio instantly. Determine if a growth stock's valuation is justified by its earnings growth rate. Enter P/E and growth rate, or derive directly from stock price and EPS.
PEG Ratio Inputs
What Is the PEG Ratio? Formula & Explanation
Implied Fair P/E = EPS Growth Rate × Industry Average PEG
Growth Premium = ((Actual P/E − Implied P/E) ÷ Implied P/E) × 100%
Example: P/E = 30×, Growth = 20% → PEG = 30 ÷ 20 = 1.5×
The PEG ratio was popularized by Peter Lynch, the legendary Fidelity Magellan fund manager who delivered 29.2% annual returns from 1977–1990. Lynch famously said a stock with PEG of 1.0 is fairly priced for its growth — a principle used by value investors worldwide to find growth at a reasonable price (GARP investing).
PEG Ratio Interpretation Guide
| PEG Range | Interpretation | Investor Signal | Typical Example |
|---|---|---|---|
| < 0.5 | Deeply Undervalued | Strong buy signal — rare opportunity | Deep value or overlooked growth stock |
| 0.5 – 1.0 | Undervalued | Attractive — growth exceeds P/E premium | Cyclical recovery, beaten-down quality stock |
| 1.0 – 1.5 | Fair Value | Fairly priced — Lynch's sweet spot | Steady compounder, blue chip growth |
| 1.5 – 2.0 | Slightly Overvalued | Premium — needs strong execution to justify | Quality franchise with brand moat |
| 2.0 – 3.0 | Overvalued | High risk — growth must materially beat estimates | Hyped growth stock, momentum name |
| > 3.0 | Extremely Overvalued | Speculation — P/E far exceeds growth rate | Bubble territory, pre-revenue speculative |
PEG vs P/E — When to Use Each
| Metric | Best For | Limitation | Example Use |
|---|---|---|---|
| P/E Ratio | Mature, stable earnings companies; sector comparison | Ignores growth — misleading for high-growth stocks | HDFC Bank, ITC, Hindustan Unilever |
| PEG Ratio | Growth stocks; comparing companies with different growth rates | Meaningless if EPS growth is negative or near zero | TCS, Bajaj Finance, D-Mart, Delhivery |
| Both together | Full picture — P/E shows absolute valuation, PEG shows growth-adjusted value | Still misses quality of earnings, competitive moat | Full stock analysis workflow |
PEG Ratios of Well-Known Stocks (Approximate)
| Stock | Market | Approx P/E | Approx Growth% | PEG | View |
|---|---|---|---|---|---|
| TCS | NSE | 26× | 10% | 2.6× | Premium IT franchise |
| Bajaj Finance | NSE | 30× | 25% | 1.2× | Fair for growth quality |
| D-Mart (Avenue Supermarts) | NSE | 80× | 20% | 4.0× | Premium for execution track record |
| Infosys | NSE | 24× | 8% | 3.0× | Slow growth limits PEG attractiveness |
| Apple (AAPL) | NASDAQ | 28× | 12% | 2.3× | Services margin re-rating |
| Alphabet (GOOGL) | NASDAQ | 22× | 18% | 1.2× | Reasonable for AI exposure |
| Coal India | NSE | 6× | 5% | 1.2× | Cheap but slow growth |
Common Mistakes When Using PEG Ratio
The PEG ratio is powerful but easily misused. Watch for these pitfalls in your analysis.
Using inconsistent time periods is a major error — if your P/E is trailing (last 12 months actual EPS) but your growth rate is forward-looking (next 12 months estimates), the PEG is not comparable. Always use trailing P/E with trailing growth, or forward P/E with forward growth estimates.
PEG fails for negative or very low growth. A company with 2% EPS growth will have an astronomically high PEG even if P/E is reasonable — PEG is designed for growth companies, not mature or declining businesses. Use P/B or EV/EBITDA instead for low-growth names.
PEG ignores earnings quality. A company growing earnings by cutting costs is very different from one growing by expanding revenue and market share. Always check the source of EPS growth — revenue growth, margin expansion, or financial engineering?
Frequently Asked Questions
PEG Ratio Calculator
Price/Earnings to Growth — Growth Stock Valuation
Calculate PEG ratio instantly. Determine if a growth stock's valuation is justified by its earnings growth rate. Enter P/E and growth rate, or derive directly from stock price and EPS.
PEG Ratio Inputs
What Is the PEG Ratio? Formula & Explanation
Implied Fair P/E = EPS Growth Rate × Industry Average PEG
Growth Premium = ((Actual P/E − Implied P/E) ÷ Implied P/E) × 100%
Example: P/E = 30×, Growth = 20% → PEG = 30 ÷ 20 = 1.5×
The PEG ratio was popularized by Peter Lynch, the legendary Fidelity Magellan fund manager who delivered 29.2% annual returns from 1977–1990. Lynch famously said a stock with PEG of 1.0 is fairly priced for its growth — a principle used by value investors worldwide to find growth at a reasonable price (GARP investing).
PEG Ratio Interpretation Guide
| PEG Range | Interpretation | Investor Signal | Typical Example |
|---|---|---|---|
| < 0.5 | Deeply Undervalued | Strong buy signal — rare opportunity | Deep value or overlooked growth stock |
| 0.5 – 1.0 | Undervalued | Attractive — growth exceeds P/E premium | Cyclical recovery, beaten-down quality stock |
| 1.0 – 1.5 | Fair Value | Fairly priced — Lynch's sweet spot | Steady compounder, blue chip growth |
| 1.5 – 2.0 | Slightly Overvalued | Premium — needs strong execution to justify | Quality franchise with brand moat |
| 2.0 – 3.0 | Overvalued | High risk — growth must materially beat estimates | Hyped growth stock, momentum name |
| > 3.0 | Extremely Overvalued | Speculation — P/E far exceeds growth rate | Bubble territory, pre-revenue speculative |
PEG vs P/E — When to Use Each
| Metric | Best For | Limitation | Example Use |
|---|---|---|---|
| P/E Ratio | Mature, stable earnings companies; sector comparison | Ignores growth — misleading for high-growth stocks | HDFC Bank, ITC, Hindustan Unilever |
| PEG Ratio | Growth stocks; comparing companies with different growth rates | Meaningless if EPS growth is negative or near zero | TCS, Bajaj Finance, D-Mart, Delhivery |
| Both together | Full picture — P/E shows absolute valuation, PEG shows growth-adjusted value | Still misses quality of earnings, competitive moat | Full stock analysis workflow |
PEG Ratios of Well-Known Stocks (Approximate)
| Stock | Market | Approx P/E | Approx Growth% | PEG | View |
|---|---|---|---|---|---|
| TCS | NSE | 26× | 10% | 2.6× | Premium IT franchise |
| Bajaj Finance | NSE | 30× | 25% | 1.2× | Fair for growth quality |
| D-Mart (Avenue Supermarts) | NSE | 80× | 20% | 4.0× | Premium for execution track record |
| Infosys | NSE | 24× | 8% | 3.0× | Slow growth limits PEG attractiveness |
| Apple (AAPL) | NASDAQ | 28× | 12% | 2.3× | Services margin re-rating |
| Alphabet (GOOGL) | NASDAQ | 22× | 18% | 1.2× | Reasonable for AI exposure |
| Coal India | NSE | 6× | 5% | 1.2× | Cheap but slow growth |
Common Mistakes When Using PEG Ratio
The PEG ratio is powerful but easily misused. Watch for these pitfalls in your analysis.
Using inconsistent time periods is a major error — if your P/E is trailing (last 12 months actual EPS) but your growth rate is forward-looking (next 12 months estimates), the PEG is not comparable. Always use trailing P/E with trailing growth, or forward P/E with forward growth estimates.
PEG fails for negative or very low growth. A company with 2% EPS growth will have an astronomically high PEG even if P/E is reasonable — PEG is designed for growth companies, not mature or declining businesses. Use P/B or EV/EBITDA instead for low-growth names.
PEG ignores earnings quality. A company growing earnings by cutting costs is very different from one growing by expanding revenue and market share. Always check the source of EPS growth — revenue growth, margin expansion, or financial engineering?