A PEG ratio calculator divides a price/earnings ratio by an expected earnings growth rate. The idea, popularised by Peter Lynch in One Up on Wall Street, is that a P/E means little on its own because a company growing earnings quickly and one growing slowly can carry the same multiple for entirely different reasons. PEG puts the growth estimate into the denominator so the two figures travel together.
Arb Digital publishes this beside the P/E ratio calculator, which handles the multiple on its own. The boundary is simple: that page stops at price divided by earnings, and this one adds the growth leg and the dividend-adjusted PEGY variant. Neither produces a fair price, a valuation, or a reason to buy or sell anything.
What This PEG Ratio Calculator Does
It computes PEG from a P/E ratio and a growth rate, and it makes the fragility of the second input visible.
You can supply price and earnings per share and let the page derive the multiple, or type a published P/E straight in. Either way the growth rate is yours. There is no consensus estimate embedded here and no market data fetched, because a growth figure baked into a page is stale within days and wrong within a quarter.
Alongside the headline number the calculator shows PEGY, which adds dividend yield to the growth term for companies that return cash rather than reinvesting all of it, and the earnings yield, which is the P/E turned upside down and is often easier to reason about. The fourth grid item works backwards: it reports the growth rate that would make PEG exactly 1 at your multiple, which turns an abstract ratio into a concrete question about whether that growth rate is plausible.
The three bars re-run the same calculation with the growth estimate moved down and up by two percentage points. That is a deliberately small change, and it usually produces a larger swing in PEG than the difference between two companies people are trying to distinguish.
How to Use It
- Decide which EPS you are using. Trailing earnings are reported and auditable; forward earnings are forecasts. Mixing a forward P/E with a growth rate drawn from historical results produces a number with no coherent meaning.
- Enter growth in percentage points, not as a decimal. Twelve per cent goes in as 12. This is the convention PEG has always used, and it is the reason the ratio has no natural units.
- Add dividend yield only if you want PEGY. For a company paying nothing, PEGY and PEG are identical by construction.
- Read the sensitivity bars before the headline. If a two-point shift in growth moves PEG across the range you were about to treat as decisive, the ratio is not resolving the question you asked it.
- Compare only within a sector. A ratio built on accounting earnings is comparable across companies whose earnings are measured the same way, and much less so across different ones.
The Formula / How It's Calculated
The P/E ratio is price per share divided by earnings per share:
P/E = Price ÷ EPS
PEG divides that multiple by the expected annual growth rate of earnings, expressed as a number of percentage points:
PEG = (P/E) ÷ g, where g is the growth rate in percentage points
PEGY adds dividend yield, also in percentage points, to the growth term:
PEGY = (P/E) ÷ (g + dividend yield)
Earnings yield is the reciprocal of the multiple, expressed as a percentage:
Earnings yield = EPS ÷ Price × 100
And the growth rate that would produce a PEG of exactly 1 is simply the multiple itself, because PEG = 1 requires g to equal the P/E.
Worked example, matching the values the page loads with. A share priced at 45.00 with earnings per share of 2.50 has a P/E of 45 ÷ 2.50 = 18.00. With expected growth of 12 percentage points, PEG is 18 ÷ 12 = 1.5000. Adding a 2% dividend yield, PEGY is 18 ÷ 14 = 1.2857. Earnings yield is 2.50 ÷ 45 × 100 = 5.5556%, and PEG would be exactly 1 at a growth rate of 18%.
Shifting growth to 10 gives 18 ÷ 10 = 1.8000, and to 14 gives 18 ÷ 14 = 1.2857. That is a range of more than half a point from a two-point change in a forecast, which is well within the error of most growth estimates.
Why the Denominator Does All the Work
The numerator of PEG is observable. The denominator is a forecast, and that asymmetry is the whole story of the ratio.
Price is a market fact. EPS is a reported accounting figure, audited and defined under a standard — the calculation of basic and diluted earnings per share is set out in IAS 33 Earnings per Share, which is why two analysts looking at the same company usually agree on the multiple to within rounding.
Growth is not like that. It is a projection over an unstated horizon, produced by a method that PEG does not require anyone to disclose. Some people use a five-year consensus estimate, some a next-year estimate, some a trailing historical rate. These are different quantities and they routinely differ by several percentage points on the same company. Because the ratio is a simple division, a denominator that is 30% too high produces a PEG that is 30% too low, and nothing in the output flags it.
This is why the sensitivity bars are the most useful part of this page. A PEG of 1.5 that becomes 1.29 or 1.80 under mild variations in a forecast is not measuring the company with the precision the two decimal places imply.
What Makes a PEG Comparison Valid
PEG is a comparative measure. It has no absolute reading, and treating a particular value as a threshold imports an assumption the arithmetic does not contain.
A comparison is on firmer ground when four things hold. The companies report under the same accounting framework, so the earnings figures mean the same thing. They are in the same sector, so capital intensity and margin structure are broadly alike. The growth estimates come from the same source over the same horizon, so the denominators are consistent. And the same EPS basis — trailing or forward — is used on both sides.
Break any of those and the comparison degrades quietly. A trailing PEG for one company against a forward PEG for another is close to meaningless, but it produces two clean-looking numbers that invite a ranking.
Sector context helps. Aswath Damodaran of NYU Stern publishes price/earnings ratios and PEG by industry for the US market, updated annually, which is a reasonable way to see the range a sector actually occupies rather than assuming one exists in the abstract.
Where PEG Breaks Down Entirely
Several situations produce a PEG that is arithmetically valid and interpretively empty.
Negative or near-zero earnings. A loss-making company has a negative P/E, and dividing it by a growth rate gives a negative PEG that ranks below every profitable company on the list. The ratio simply does not apply.
Negative growth. If earnings are expected to shrink, PEG turns negative for a different reason. A negative denominator and a positive numerator produce a number that looks low, which is the opposite of what a shrinking business represents.
Very low growth. As the growth rate approaches zero the ratio approaches infinity. A mature company growing at 1% will show an enormous PEG regardless of its multiple, which says more about division than about the business.
Cyclical earnings. At the bottom of a cycle, depressed earnings inflate the multiple while recovery expectations inflate growth, and the two distortions partly cancel in an uncontrolled way. The CAGR calculator over a full cycle is a more honest description of the growth rate in these cases than any single-year figure.
This calculator reports these cases explicitly rather than printing a number that hides them.
Arb Digital reports marketing growth the same way this page reports a ratio — the horizon stated, the method named, and the sensitivity shown rather than hidden.
See Web Growth Services Talk to Arb DigitalCommon Mistakes to Avoid
- Entering growth as a decimal — 0.12 instead of 12 makes PEG a hundred times too large, and the number still looks plausible enough to be quoted.
- Mixing trailing and forward bases — a forward multiple with a historical growth rate, or the reverse, produces a ratio whose two halves describe different periods.
- Comparing across sectors — capital intensity, accounting treatment and typical growth ranges differ enough that the same PEG carries different information in different industries.
- Treating a value as a threshold — PEG is a comparative measure, and any particular level is a convention rather than a property of the arithmetic.
- Ignoring dividends for a high payer — a company distributing most of its earnings reinvests less, so its growth rate is structurally lower and plain PEG penalises it for a choice PEGY accounts for.
Related Free Tools From Arb Digital
The P/E ratio calculator handles the multiple alone, and the EPS calculator builds the earnings figure that feeds it. For the balance-sheet view rather than the earnings view, use the price-to-book calculator. The dividend yield calculator produces the yield PEGY needs, the CAGR calculator turns a history into an annualised growth rate, and the intrinsic value calculator takes the discounted-cash-flow route instead of a multiple. Everything else is in the free online tools hub.
Frequently Asked Questions
It is the price/earnings ratio divided by an expected annual earnings growth rate expressed in percentage points. The idea, associated with Peter Lynch, is that a multiple carries more information when it is read against the growth the market appears to be paying for rather than on its own.
As 12. PEG has always used percentage points in the denominator, which is why the ratio has no natural units. Entering a decimal makes the result a hundred times larger and the mistake is easy to miss because the number still looks like a ratio.
That is a convention, not a property of the arithmetic. A particular value implies an assumption about what growth is worth that the formula itself does not contain. PEG is a comparative measure, and it is most useful when set against companies measured the same way rather than against a fixed number.
It adds dividend yield to the growth term in the denominator. A company distributing most of its earnings reinvests less and therefore grows more slowly by construction, so plain PEG penalises it for returning cash. PEGY treats the yield as part of the return being paid for.
Either earnings are negative, which makes the multiple negative, or growth is expected to be negative, which makes the denominator negative. In both cases the resulting figure ranks the company misleadingly against profitable, growing peers. The ratio does not apply in either situation.
Either, as long as you say which and keep it consistent across every company in the comparison. Trailing earnings are reported and auditable, forward earnings are estimates. A ratio built from one basis is not comparable with one built from the other.
Because it is a simple division and the denominator is a forecast. A growth estimate that is a few percentage points too high produces a proportionally lower PEG, and nothing in the output signals it. The sensitivity bars on this page re-run the calculation two points either side so the size of that effect is visible.
With considerable care. Typical growth rates, capital intensity and accounting treatment vary by sector, so the same PEG describes different situations in different industries. Published sector data is a better reference point than any universal figure.
This tool performs an arithmetic calculation on figures you supply. It is not investment advice, not a valuation, and not a recommendation to buy, sell or hold any security. Its output is not a fair price or a price target. Decisions about your money should involve a licensed financial adviser regulated in your jurisdiction.
