What PEG ratio is considered cheap?

Peter Lynch popularized the rule that PEG below 1.0 is cheap. However, this breaks down for very high-growth or very low-growth companies. Context matters.

Which growth rate should I use?

Forward 1-year EPS growth (most common), 5-year estimated growth for long-horizon investors, or trailing growth for objective analysis.

What are the limitations of PEG?

PEG assumes a linear relationship between P/E and growth, which is theoretically inconsistent with DCF models. It also ignores risk, balance sheet quality, and capital intensity.

PEG Ratio Calculator

Calculate Price/Earnings-to-Growth ratio: PEG = P/E / EPS Growth Rate. A PEG of 1.0 is considered fairly valued; below 1.0 potentially undervalued for its growth rate.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate Price/Earnings-to-Growth ratio: PEG = P/E / EPS Growth Rate. A PEG of 1.0 is considered fairly valued; below 1.0 potentially undervalued for its growth rate. Use the peg ratio result to inform your calculation.

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Frequently Asked Questions

What PEG ratio is considered cheap?

Which growth rate should I use?

What are the limitations of PEG?