The price/earnings-to-growth ratio, usually called the PEG ratio, compares a company’s price-to-earnings multiple with an estimated earnings growth rate. This page first estimates sustainable growth as retention rate multiplied by return on equity, then divides P/E by that growth rate expressed in percentage points. It can help an investor examine the assumptions behind a valuation, but a single ratio does not establish whether a share is cheap, expensive, safe, or suitable.
PEG Ratio Calculator
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Earnings growth
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PEG ratio
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Table of Contents
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What is PEG Ratio?
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How to Use This Calculator
- Enter market price per share and earnings per share in the same currency. This page requires positive EPS because its simple PEG interpretation is not meaningful for a loss-making company.
- Enter the retention rate: the percentage of earnings assumed to stay in the business rather than being distributed.
- Enter return on equity as a percentage for the same analytical period and accounting basis.
- Select Calculate. The page finds sustainable earnings growth, P/E, and then PEG.
Use figures from a consistent source and date. Price is a market value at a point in time, while EPS, retention, and ROE come from a reporting period or forecast. Mixing trailing EPS with optimistic future profitability can make the ratio look more precise than the assumptions deserve.
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Formula Used
Estimated growth (%) = retention rate (%) × ROE (%) ÷ 100. P/E = price per share ÷ EPS. PEG = P/E ÷ estimated growth in percentage points.
For example, growth of 6% enters the final division as 6, not 0.06. This convention is widely used when quoting PEG values. The calculator uses the internally generated sustainable-growth estimate; it does not accept an analyst’s separate forecast. The result will therefore differ from services that use a consensus forward growth rate.
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Variables Explained
| Input or result | Meaning |
|---|---|
| Price per share | Current or chosen market price for one share. |
| EPS | Positive earnings attributable per share under a consistent basic or diluted definition. |
| Retention rate | Share of earnings retained in the business, from above 0% through 100%. |
| ROE | Return on equity as a percentage. |
| Estimated growth | Retention rate multiplied by ROE under the sustainable-growth assumption. |
| PEG | P/E divided by estimated growth in percentage points. |
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Worked Example
Suppose a share price is $50, EPS is $2, the retention rate is 40%, and ROE is 15%. Estimated growth is 40 × 15 ÷ 100 = 6%. The P/E is 50 ÷ 2 = 25. The PEG ratio is 25 ÷ 6 = 4.1667, shown to four decimal places. That output reflects this page’s sustainable-growth assumption; replacing 6% with a separate forecast would create a different PEG.
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Why Use This Calculator?
A lower PEG is sometimes read as a lower price relative to the assumed growth, but there is no universal fair-value cutoff. Industry economics, risk, balance-sheet strength, cyclicality, interest rates, accounting choices, and the durability of returns matter. A high-quality business can have a high ratio, while a low ratio can reflect falling earnings or a growth estimate that investors do not trust.
Review the inputs before comparing companies. EPS can be trailing or forward, basic or diluted, and adjusted or reported. ROE can be distorted by large debt, share repurchases, losses in prior years, or unusually small equity. Compare businesses using like definitions and read the financial statements and risk disclosures. This calculation is educational and is not personalized investment advice.
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Common Mistakes
- Entering price and EPS in different currencies.
- Using 0.40 instead of 40 for a 40% retention rate.
- Comparing this sustainable-growth PEG with a published forecast-growth PEG as though they were identical.
- Using negative or near-zero EPS, which makes P/E and PEG difficult or meaningless.
- Combining a current share price with stale EPS, ROE, or retention data without noting the date.
- Assuming a PEG below or above a particular number automatically gives a buy or sell signal.
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Frequently Asked Questions
What growth rate does this calculator use?
It estimates sustainable growth by multiplying the retention percentage by ROE and dividing by 100. It does not use an analyst consensus or a manually entered forecast.
Why must price and EPS use the same currency?
Their units cancel when P/E is calculated only if both use the same currency. Mixing currencies creates an invalid multiple.
Why is 6% growth used as 6 in the PEG division?
Quoted PEG calculations conventionally divide P/E by growth stated in percentage points. Using 0.06 would make the displayed ratio one hundred times larger.
Can PEG be used when earnings are negative?
A conventional P/E is not useful with negative earnings, so this page requires positive EPS. Loss-making companies need other measures and fuller analysis.
Does a PEG of 1 mean a share is fairly valued?
That is a popular rule of thumb, not a valuation law. Risk, business quality, accounting definitions, industry norms, and the reliability of growth assumptions can change the meaning.
Should I use trailing or forecast EPS?
Either can support an analysis if definitions are consistent and clearly labelled. Do not compare a trailing figure for one company with a forecast figure for another without adjustment.
Is the result investment advice?
No. It is a mechanical comparison based on supplied figures. Consider financial statements, risks, objectives, diversification, and qualified advice before making an investment decision.
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Sources & References
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