---
title: "Definition of PEG Ratio"
url: https://signalscreener.fr/definition/peg-ratio/
markdown_url: https://signalscreener.fr/definition/peg-ratio.md
description: "The PEG Ratio adjusts the P/E ratio for growth."
type: glossary-definition
site: Signal Screener
language: en
keywords:
  - "PEG Ratio"
  - "Price/Earnings-to-Growth Ratio"
translations:
  es: https://signalscreener.fr/es/definition/peg-ratio.md
  fr: https://signalscreener.fr/fr/definition/peg-ratio.md
  pt: https://signalscreener.fr/pt/definition/peg-ratio.md
---

# Price/Earnings-to-Growth Ratio

## What is PEG Ratio?

The PEG Ratio adjusts the P/E ratio for growth. It divides P/E by earnings growth rate. A PEG under 1 might indicate undervaluation relative to growth potential.

## Think of it like this

Two restaurants both have P/E of 20. Restaurant A grows 10% yearly (PEG = 2). Restaurant B grows 30% yearly (PEG = 0.67). Restaurant B offers better value for its growth!

## Formula

```
PEG = P/E Ratio / Annual Earnings Growth Rate
```

- **P/E Ratio**: Price-to-Earnings ratio
- **Growth Rate**: Expected annual earnings growth %

## Why it matters

- Factors growth into valuation
- PEG < 1 might mean undervalued relative to growth
- Better than P/E for comparing growth stocks
- Popularized by Peter Lynch for finding bargains

## What's a good value?

| Range | Rating | What it means |
|---|---|---|
| < 0.5 | Very Undervalued | Potentially great value |
| 0.5-1.0 | Undervalued | Good value for growth |
| 1.0-1.5 | Fair Value | Reasonably priced |
| > 1.5 | Overvalued | Expensive relative to growth |

## Real-world example

Netflix: P/E 40, Growth 20% = PEG 2.0 (expensive). Microsoft: P/E 30, Growth 15% = PEG 2.0 (fair for quality). Small cap: P/E 15, Growth 30% = PEG 0.5 (potential bargain).

## Things to watch out for

- Growth estimates can be wrong
- Doesn't work for dividend stocks
- Less reliable for cyclical companies
- Different sources use different growth periods

---

This is educational content, not financial advice.

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