PEG
Price/Earnings to Growth · PEG Ratio
The ratio of P/E to earnings growth rate — indicates whether the valuation is justified by growth.
What it is
PEG = P/E / Annual EPS Growth Rate (%)
PEG = 1 is traditionally considered "fairly valued". Below 1 = potentially cheap relative to growth, above 2 = expensive.
Example: P/E = 30×, EPS growing 20% annually → PEG = 1.5 (slightly above fair value, but not extreme).
Why track it
P/E alone does not tell you whether a company is cheap or expensive — a 30× P/E can be cheap for a company with 30% earnings growth and expensive for one with 5% growth. PEG corrects this distortion.
Most useful when comparing growth companies or evaluating whether a P/E premium is justified.
Real-world example
Watch out for
PEG is sensitive to which "growth rate" you use — historical vs. estimated, 1 year vs. 5 years. Always specify which growth rate is input to PEG.