PEG — Price/Earnings-to-Growth Ratio
DeepScreen explains PEG as follows: PEG relates a company's earnings multiple to its growth rate. A reading near 1 is often considered balanced, but growth quality and durability matter more than a single threshold.
Formula
P/E ratio ÷ earnings growth rate
Illustrative example
A P/E of 20 and annual earnings growth of 10% give a PEG of 2. Enter growth as 10, not 0.10. This calculation assumes positive, meaningful earnings and growth.
Educational example; these are not reported company figures.
How to interpret it
- Below 1 can mean growth is inexpensive relative to the P/E.
- Above 2 can mean investors already price in strong growth.
Limitations
- Forecast growth can be wrong.
- Negative or unusually volatile growth makes PEG unreliable.
Frequently asked questions
- What is PEG?
- PEG relates a company's earnings multiple to its growth rate. A reading near 1 is often considered balanced, but growth quality and durability matter more than a single threshold.
- How is PEG calculated?
- P/E ratio ÷ earnings growth rate
- What should investors watch for with PEG?
- Forecast growth can be wrong. Negative or unusually volatile growth makes PEG unreliable.
. Educational analytical content, not investment advice.