PEG Ratio

Valuation
Updated Apr 2026 • Has calculator

Adjusts the P/E ratio by a company's expected earnings growth rate.

What is PEG Ratio?

The price/earnings-to-growth ratio (PEG ratio) divides the price-to-earnings ratio by the expected annual EPS growth rate, adjusting valuation for growth. A PEG below 1 is traditionally viewed as potentially undervalued relative to its growth, while a PEG above 1 implies investors are paying a premium for that growth. Peter Lynch popularised the PEG ratio as a quick screen for stocks that offer both reasonable valuation and strong earnings momentum. The metric is sensitive to the growth rate assumption, so the source and time horizon of the growth estimate matter significantly.

Formula

PEG = P/E Ratio ÷ EPS Growth Rate (%)

Worked Example

Worked example — Apple Inc. (AAPL)

FY2024

Step 1  P/E ratio: 30.03x
Step 2  5-year EPS CAGR (FY2019–FY2024): 15.4%
Step 3  PEG = 30.03 ÷ 15.4 = 1.95
Step 4  → Investors pay a modest premium for Apple’s earnings growth

Source: Apple Annual Report FY2024 (2024-11-01)

Calculate PEG Ratio

Price-to-earnings ratio (dimensionless)

Annual EPS growth rate in percent (e.g. 15 for 15%)

PEG Ratio

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Not investment advice.

How to Interpret PEG Ratio

< 1
Undervalued relative to growth
1 – 2
Fairly valued — reasonable growth premium
2 – 3
Modest premium — strong growth expected
> 3
High premium — significant growth baked in

📚 Income Investing — Complete the path

  1. Dividend Yield
  2. FCF Yield
  3. Retention Ratio
  4. Sustainable Growth Rate
  5. PEG Ratio
Sources
  1. Apple Inc. — Annual Report FY2024
  2. Lynch, P. — One Up on Wall Street (Simon & Schuster, 1989)
  3. CFA Institute — Equity Valuation, 4th ed.