PEG ratio
What is PEG ratio
The PEG ratio (price/earnings-to-growth) is a valuation metric that adjusts the P/E ratio by the company’s earnings growth. It helps compare companies with different growth profiles by showing how much investors pay for each unit of earnings growth.
How to calculate PEG ratio (formula)
We calculate PEG as P/E divided by one-year EPS growth. For trailing-twelve-month (TTM) records, the one-year growth is measured as TTM EPS in the last reported quarter versus TTM EPS in the same quarter a year earlier.
PEG = P/E / 1y EPS growth
What is a good PEG ratio
As a rule of thumb, a PEG ratio around 1.0 implies a stock priced roughly in line with its growth. Lower than 1.0 can indicate potentially better value (paying less for growth), while higher than 1.0 can indicate a richer valuation. Always compare PEG among peers in the same industry and consider growth quality and cyclicality.
Stocks with low PEG ratios
?| Name | PEG | Marketcap | Industry |
|---|---|---|---|
| DLTR Dollar Tree Inc | 0.1 | $24.62B | Discount Stores |
| MLM Martin Marietta Materials Inc | 0.1 | $30.8B | Building Materials |
| CINF Cincinnati Financial Corp | 0.1 | $26.77B | Insurance - Property & Casualty |
| LOB Live Oak Bancshares Inc | 0.1 | $1.84B | Banks - Regional |
| PTC PTC Inc | 0.1 | $16.44B | Software - Application |
| ROKU Roku Inc - Class A | 0.1 | $23.38B | Entertainment |
| BHF Brighthouse Financial Inc | 0.1 | $3.1B | Insurance - Life |
What can PEG ratio tell us
PEG helps normalize P/E for growth so investors can compare valuation across companies with different growth rates. It’s most informative when growth is expected to be sustainable and when earnings are not highly volatile. Use PEG together with other indicators (e.g. P/S, margins, cash flow) to build a fuller view.
What does a negative PEG ratio mean
A negative PEG usually results from negative or shrinking EPS (or negative measured growth). It typically signals that PEG is not meaningful for that period and should be interpreted with caution. In such cases, review the underlying earnings trend, one-off items, and whether EPS is cyclically depressed.
You can also check the PEG ratio by industry analysis.