Question 1

What is the PEG ratio?

Accepted Answer

The price/earnings-to-growth (PEG) ratio is the P/E ratio divided by the expected EPS growth rate. It adjusts for growth, making it more useful than P/E alone for comparing companies with different growth profiles. A PEG of 1.0 is often considered fairly valued — you are paying one dollar of P/E for each percentage point of growth.

Question 2

What is a "good" PEG ratio?

Accepted Answer

As a general benchmark, a PEG below 1.0 suggests potential undervaluation relative to growth, while above 1.0 may suggest overvaluation. The S&P 500 has historically traded at a PEG of roughly 1.2–1.5×. However, these are guidelines, not rules — high-quality compounders often sustain PEGs above 2× for years.

Question 3

How is the PEG ratio calculated?

Accepted Answer

PEG = (Price / EPS) / EPS Growth Rate. For example, if a stock has a P/E of 20 and earnings are growing at 15% annually, the PEG is 20 / 15 = 1.33. A lower number indicates you are paying less per unit of growth.

Question 4

What growth rate should I use — trailing or forward?

Accepted Answer

Forward PEG (using estimated future growth) is more forward-looking and widely cited by analysts. Trailing PEG uses historical growth, which is more objective but may not reflect the current trajectory. Both are useful — compare them to see if the story is consistent.

Question 5

What are the limitations of the PEG ratio?

Accepted Answer

PEG assumes a linear relationship between P/E and growth, which does not always hold. It is unreliable when earnings are negative, near zero, or highly cyclical. It is also sensitive to the growth estimate used — small changes in the assumed growth rate produce large swings in the PEG. Always pair PEG with DCF, P/B, and EV/EBITDA for a complete picture.

Question 6

How does Equity Rank incorporate growth-adjusted valuation?

Accepted Answer

Equity Rank's consensus valuation blends 8–15 methods per stock, including PEG-based analysis, DCF, Graham Number, and sector-adjusted multiples. Each method is weighted by its historical accuracy for the company type. For high-growth companies, PEG-based methods receive higher weight in the consensus.

Sector	Avg PEG (est.)	Context
Technology (High Growth)	1.8×	Market pays premium for growth
Consumer Discretionary	1.4×	Moderate growth premium typical
Health Care / Biotech	1.5×	R&D pipeline valued by market
Industrials	1.2×	Near fair value at 1.0–1.2×
Communication Services	1.3×	Subscriber growth drives premium
S&P 500 Average	1.4×	Broad market benchmark
Consumer Staples	1.1×	Stable earnings, limited growth
Financials	1×	Valued near 1.0× historically
Energy	0.8×	Cyclical earnings compress PEG
Utilities	0.9×	Low growth = compressed PEG
Materials	1×	Commodity-driven earnings
Real Estate (REITs)	0.9×	FFO growth vs EPS nuance

PEG Ratio Calculator

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Frequently asked questions

PEG Ratio Calculator

Sector PEG benchmarks

Go deeper: multi-method valuation

800+ stocks re-scored every week. Delivered free every Sunday.

Frequently asked questions

800+ stocks re-scored every week.
Delivered free every Sunday.