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PEG ratio calculator and formula

PEG is P/E divided by expected EPS growth in percentage points. A $50 share on $2.50 of earnings growing at 10 percent is a P/E of 20 and a PEG of 2. Growth of 10 means ten, not 0.10.

PEG ratio

2.00

P/E 20.0x over 10.0 percent expected growth.

Price per share
$50.00
Earnings per share
$2.50
P/E
20.0x
Market cap
$5,000,000,000
PEG
2.00
$
$

Trailing twelve months on a teaching sheet. Negative EPS makes P/E, and PEG, unusable.

%

Percentage points: 10 means ten percent. PEG is P/E over this number, not over 0.10.

In millions of shares. 100 here is 100,000,000 shares.

On this page

The formula

PEG=P/Eg%\text{PEG} = \frac{\text{P/E}}{g_{\%}}

P/E is price over EPS. g_% is expected EPS growth in percentage points: 10 means ten percent. PEG is 20 / 10 = 2, not 20 / 0.10.

P/E over growth points, not over 0.10

PEG asks how many years of the current multiple you are paying per point of expected earnings growth:

PEG=P/EPSg%\text{PEG} = \frac{P/\text{EPS}}{g_{\%}}

On a $50 share with $2.5 of EPS, P/E is 20. Expected growth of 10 percent is the number 10, not 0.10. PEG is 20/10=220 / 10 = 2. With 100,000,000 shares, market capitalisation is $5,000,000,000 and total earnings are $250,000,000, the same P/E of 20.

The calculator on this page is that division. How the PEG ratio works is the identity. A PEG of 1 is the folklore fair reading: the multiple equals the growth points. It is a convention, not a law.

Hold growth still and the multiple moves PEG

Keep the $50 price, 100,000,000 shares, and 10 percent expected growth. Raise EPS to $5. P/E falls to 10. PEG falls to 1. The growth forecast did not change. The year got more profitable, so each point of expected growth buys a cheaper multiple.

That is the same sheet how the P/E ratio works uses for a lower multiple. PEG follows it because PEG is P/E in the numerator.

A higher multiple and slower growth stack

Price $80, EPS still $2.5, shares 50,000,000, expected growth 8 percent. P/E is 32. PEG is 32/8=432 / 8 = 4. Market cap is $4,000,000,000. Earnings are $125,000,000.

The 4 is not a more expensive share in dollars. It is 32 times earnings against 8 points of expected growth. P/E against PEG is that pair.

What this page is not doing

It is not a forecast of growth, not a trailing-against-forward switch, and not a claim that PEG of 2 is dear. The three sheets are PEG 2 on a P/E of 20 and 10 percent growth, PEG 1 when EPS doubles, and PEG 4 on a P/E of 32 and 8 percent growth. This is educational material, not financial advice.

Worked examples

A \$50 share growing at 10 percent

The share price is $50, EPS is $2.5, expected EPS growth is 10 percent, and 100,000,000 shares are outstanding. What is P/E, and what is PEG?

  1. P/E is price over EPS: 50/2.50=2050 / 2.50 = 20.
  2. Market cap: 50×100000000=500000000050 \times 100000000 = 5000000000, so $5,000,000,000.
  3. Total earnings: 2.50×100000000=2500000002.50 \times 100000000 = 250000000, so $250,000,000.
  4. PEG is P/E over the growth points: 20/10=220 / 10 = 2.

P/E is 20. PEG is 2. Market cap is $5,000,000,000. Earnings are $250,000,000.

The same growth on \$5 of EPS

Keep the $50 price, 100,000,000 shares, and 10 percent expected growth. EPS is now $5. What is PEG?

  1. P/E: 50/5=1050 / 5 = 10.
  2. Market cap is still $5,000,000,000.
  3. Total earnings: 5×100000000=5000000005 \times 100000000 = 500000000, so $500,000,000.
  4. PEG: 10/10=110 / 10 = 1.

P/E falls to 10. PEG falls to 1. Market cap is still $5,000,000,000. Earnings are $500,000,000.

An \$80 share growing at 8 percent

Price is $80, EPS is $2.5, shares outstanding 50,000,000, expected growth 8 percent. What is PEG?

  1. P/E: 80/2.50=3280 / 2.50 = 32.
  2. Market cap: 80×50000000=400000000080 \times 50000000 = 4000000000, so $4,000,000,000.
  3. Total earnings: 2.50×50000000=1250000002.50 \times 50000000 = 125000000, so $125,000,000.
  4. PEG: 32/8=432 / 8 = 4.

P/E is 32. PEG is 4. Market cap is $4,000,000,000. Earnings are $125,000,000.

The mistake that costs the most

Dividing P/E by 0.10 instead of by 10.

Growth of 10 percent is the number 10 in this convention. 20/0.10=20020 / 0.10 = 200, which is not a PEG anyone quotes. The page prints 2 because it divides by the percentage points.

The other error is mixing a trailing P/E with a five-year growth rate from a different year. PEG only means one thing when both pieces describe the same forecast.

Common questions

Is a PEG below 1 a bargain?

It is a multiple below the growth points on this convention. Distressed names print a low PEG because the price collapsed. The 1 on the second sheet is a more profitable year on a still $50 share, not a screen. This is educational material, not financial advice.

Trailing or forward P/E in the numerator?

Whichever EPS you type. Mixing trailing P/E with forward growth is how one firm looks like two.

Why is growth 10, not 0.10?

Because the usual quote is P/E over the growth rate in percent. 20 over 10 is 2. 20 over 0.10 is 200, which is a different object.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.