PEG Ratio
A compact valuation-growth ratio that is highly sensitive to the selected P/E, growth estimate, period, and unit convention.
The PEG ratio commonly divides a P/E ratio by an earnings growth rate expressed as a whole-number percentage, such as 20 rather than 0.20. Variants use trailing or forward P/E and historical or forecast growth. Results are unstable when growth is near zero and generally not meaningful with negative P/E or negative growth.
Frequently Asked Questions
Does a PEG below 1 mean a stock is undervalued?
No. That rule is only a heuristic and ignores risk, capital intensity, margins, cash conversion, growth duration, dilution, leverage, and estimate uncertainty. A low PEG can result from an unrealistic growth forecast or temporarily high earnings.
Which growth rate should be used?
There is no single required rate. Analysts may use one-year, multi-year, historical, or forecast EPS growth. The source, period, currency, accounting basis, and treatment of losses should be disclosed.
What happens when growth is zero or negative?
At zero growth the ratio is undefined. With negative growth or a negative P/E, the sign and magnitude are generally not interpreted using standard PEG heuristics.
Why can two data providers show different PEG ratios?
They may use different share prices, P/E definitions, EPS adjustments, analyst estimates, growth horizons, and update dates. Consistent inputs are essential for comparison.