Long-term investing

PEG ratio

Defined in 2 lessons · Updated October 17, 2026

Definition

P/E ÷ the expected annual EPS growth rate, written as a whole number: a P/E of 30 with 15% growth gives 30 ÷ 15 = 2.0. It only works when growth is positive and meaningful.

Example

Say company XYZ trades at a P/E of 36 with expected EPS growth of 24% a year, for a PEG of 36 ÷ 24 = 1.5. A slower company at a P/E of 12 growing 4% a year has a PEG of 12 ÷ 4 = 3.0, so the lower-P/E stock costs more per point of growth. If XYZ’s expected growth turned negative, its PEG would mean nothing.

Hypothetical numbers, for illustration only.

Two company cards: Company A, P/E 40 and growth 40%, gives a PEG of 1.0; Company B, P/E 20 and growth 5%, gives a PEG of 4.0; a note reads PEG = P/E ÷ growth rate.

Also defined in

How to Pick Growth Stocks: A 7-Step Process With Examples→ Step 4: Sanity-check the valuation: P/E vs growth, PEG and P/S

UpTickFlow is our product. These guides are education, not financial advice. Trading involves a substantial risk of loss.