Plain-English definitions, reviewed by an independent investor
PEG Ratio
PEG adjusts the P/E ratio for expected earnings growth, so a stock’s price looks fairer once growth is considered.
PEG adjusts the P/E ratio for expected earnings growth, so a stock’s price looks fairer once growth is considered.
PEG = (P/E Ratio) ÷ Expected Annual EPS Growth (%)
Why it matters
It stops you over-paying for a high P/E stock when that company is growing quickly.
Common confusion
PEG relies on growth estimates, which are guesses and change often; treat it as a guide, not a fact.
Frequently Asked Questions
What is a good PEG ratio?
Many investors use 1.0 as a rough fair-value line: below 1 may be undervalued, above 1 may be pricey.
Does PEG work for all stocks?
It works best for companies with steady, predictable growth. Turnarounds and banks are poor fits.