Price/Earnings-to-Growth Ratio
PEG RatioP/E ratio adjusted for growth: a fairer comparison
Definition
The PEG ratio solves one of the P/E ratio's biggest limitations: it adjusts for earnings growth. A PEG under 1.0 means the multiple is low relative to the growth rate. It is a screen, not a verdict.
P/E Ratio ÷ Earnings Growth Rate (%)
Example
Company A has P/E of 40 and grows earnings at 40%/yr → PEG = 1.0. Company B has P/E of 20 but only grows at 5%/yr → PEG = 4.0.