PEG Ratio Calculator
PEG Ratio Calculator
Evaluate whether a stock is overvalued or undervalued relative to its earnings growth. The PEG ratio adjusts the traditional Price-to-Earnings Ratio (P/E) by accounting for the company's expected earnings growth rate, providing a more complete valuation picture.
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INSTRUCTIONS
How to Use This Calculator
1. Enter Stock Price
Input the current market price of the stock. Use the most recent closing price or real-time quote for the best accuracy.
2. Enter Earnings Per Share (EPS)
Input the trailing twelve-month earnings per share. You can use either reported or forward-looking analyst consensus estimates.
3. Enter Growth Rate
Input the expected annual earnings growth rate as a percentage. Use analyst consensus estimates or historical growth rates as a guide.
4. Read Valuation
A PEG ratio below 1.0 suggests the stock may be undervalued relative to its growth, while above 1.0 suggests it may be overvalued.
EDUCATION
Understanding the PEG Ratio
The Price/Earnings to Growth (PEG) ratio refines the traditional P/E ratio by incorporating the company's expected earnings growth rate. While a stock with a high P/E ratio might appear expensive, a high growth rate can justify that premium. The PEG ratio helps investors compare stocks with different growth profiles on a more level playing field and is widely used by growth-oriented investors to identify attractively priced opportunities.
The formula is: PEG Ratio = (P/E Ratio) / Earnings Growth Rate, where the P/E ratio is calculated as Stock Price / EPS and the growth rate is expressed as a whole number (e.g., 15 for 15%). A PEG of 1.0 implies the stock is fairly valued relative to its growth. A fair value price at PEG = 1 can be estimated as EPS x Growth Rate.
For example, if a stock trades at $150 with EPS of $6.00 and an expected growth rate of 15%, the P/E ratio is 25x and the PEG ratio is 1.67. This suggests the stock is somewhat overvalued relative to its growth. The fair value at PEG = 1 would be $90, implying 40% downside. However, the PEG ratio should be used alongside other metrics, as it does not account for risk, debt levels, or the quality of earnings.
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