← Glossary
PEG Ratio
P/E ratio divided by EPS growth rate — a way of judging whether a stock's valuation is justified by how fast its earnings are actually growing.
Formula: PEG = P/E Ratio ÷ EPS Growth Rate (%)
Two stocks can have the same P/E ratio and mean very different things: one growing earnings at 5% a year, the other at 25%. PEG adjusts for that by dividing the P/E by the earnings growth rate, so a lower PEG suggests the price is more reasonable relative to growth.
As a rough rule of thumb used across most markets, a PEG near 1 is considered fairly valued, below 1 potentially undervalued, and above 1 potentially expensive relative to growth — but, like P/E, it's most useful compared against similar companies rather than read in isolation.