PEG Ratio
The P/E ratio divided by expected earnings growth — a way of asking whether a stock's valuation is reasonable given how fast it's actually expected to grow.
What it means
The PEG (price/earnings-to-growth) ratio divides a company's P/E ratio by its expected earnings growth rate, expressed as a percentage without the % sign — a stock with a P/E of 20 and 20% expected annual earnings growth has a PEG of 1.0. The idea, popularized by investor Peter Lynch, is that P/E alone doesn't account for growth: a P/E of 30 looks expensive next to a P/E of 15, but if the first company is growing earnings twice as fast, the two might actually be similarly valued once growth is factored in. A PEG around 1.0 is the traditional (though rough) rule-of-thumb benchmark for "fairly valued given its growth rate" — below 1.0 potentially undervalued relative to growth, above 1.0 potentially overvalued relative to growth.
How MarketWall calculates it
MarketWall reports PEG ratio directly from each stock's weekly Yahoo Finance fundamentals sync. See the Data Sources & Methodology page for the full sync schedule.
How it's typically used
PEG's usefulness is entirely dependent on the growth estimate behind it, which is the ratio's biggest weakness: unlike the trailing P/E it's built from, the growth rate is a forecast, and different data providers can use different growth estimates (analyst consensus for the next year, a longer multi-year projected rate, and so on) for the same company, producing meaningfully different PEG values from different sources. Treat the 1.0 benchmark as a rough historical rule of thumb, not a hard rule — different industries and market environments have supported different "normal" PEG levels, and a low PEG can just as easily reflect a market that (correctly or not) doubts the growth estimate will actually be hit, rather than a genuine bargain. It's most useful for comparing similarly-classified growth companies against each other, since it puts a fast grower and a merely-growing company on more comparable footing than P/E alone would — two growth-stage software companies with very different P/Es might have much closer PEG ratios once their different growth rates are accounted for. PEG says nothing about a company's quality, profitability margins, or balance sheet — it's purely a growth-adjusted price check, one input to weigh alongside everything else, not a standalone answer.
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FAQ
What does a PEG ratio of 1.0 mean?
It's the traditional rule-of-thumb benchmark for 'fairly valued given its growth rate' — the P/E and the expected growth rate are roughly in balance. It's a rough guide, not a precise threshold.
Why do PEG ratios differ between data sources for the same stock?
PEG depends on a growth estimate, and different providers use different growth estimates (next year's consensus, a longer multi-year rate, etc.) — the P/E half of the calculation is consistent, but the growth half isn't standardized across sources.
Can a stock have a negative PEG ratio?
Yes, if expected earnings growth is negative — but a negative PEG isn't meaningfully comparable to a positive one, so it's generally excluded from 'lowest PEG' style comparisons rather than read as 'even cheaper.'
Who popularized the PEG ratio?
Investor Peter Lynch, in his book 'One Up on Wall Street,' as a way to compare growth stocks on a more apples-to-apples basis than P/E alone.
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