PEG Ratio Calculator

Growth changes how investors read earnings multiples, and the PEG Ratio Calculator compares a stock’s price-to-earnings ratio with an earnings growth estimate. It is designed to answer a more nuanced question than “what is the P/E?” A high P/E may be reasonable if earnings are expected to grow quickly, while a low P/E may still be expensive if earnings are stagnant or declining. PEG turns that comparison into one number by dividing P/E by growth.

This page is informational, not investment advice. PEG depends heavily on the growth assumption, and a calculator result should never replace a full review of financial statements, competitive position, risk, and valuation.

How to use this calculator

Enter price per share and earnings per share (EPS). The calculator requires EPS to be positive because P/E and PEG are not meaningful with zero or negative earnings in this setup. Enter retention rate as the percentage of earnings retained rather than paid out. Enter return on equity (ROE) as the expected return earned on equity. The form estimates earnings growth as retention rate times ROE, then divides the P/E ratio by that growth percentage.

This makes the calculator different from a PEG tool that accepts an analyst growth forecast directly. If you already have a growth estimate, you can choose retention and ROE inputs whose product equals that estimate, but label your assumption clearly. For related valuation work, compare revenue multiples with the price to sales ratio calculator, asset multiples with the price to book ratio calculator, and cash generation with the free cash flow calculator. For reinvestment math outside stock analysis, use the compound interest calculator.

Formula

The calculator first computes P/E:

$\text{P/E ratio} = \frac{\text{price per share}}{\text{earnings per share}}$

It estimates earnings growth as:

$\text{earnings growth percent} = \left(\frac{\text{retention rate}}{100}\right) \times \text{ROE}$

Then it calculates PEG:

$\text{PEG ratio} = \frac{\text{P/E ratio}}{\text{earnings growth percent}}$

The growth input in the PEG denominator is a percentage number, not a decimal. For example, 4.8 percent growth is entered in the denominator as 4.8, not 0.048. That follows the formula above.

Example: calculating a PEG ratio

Use the default inputs: $20.00 price per share, $1.50 EPS, 60 percent retention rate, and 8 percent ROE. The calculator first calculates P/E:

$\text{P/E ratio} = \frac{20.00}{1.50} = 13.33$

Next it estimates earnings growth:

$\text{earnings growth percent} = \left(\frac{60}{100}\right) \times 8 = 4.8$

Finally it divides P/E by the growth percentage:

$\text{PEG ratio} = \frac{13.33}{4.8} = 2.78$

The result card therefore shows a 2.78× PEG ratio, a 13.33× P/E ratio, and 4.80 percent earnings growth. Because the PEG is above 2, the form’s tone is negative and the note says a higher PEG can mean investors are paying more for each point of expected growth.

Interpretation and benchmarks

A PEG near 1 is often used as a rough rule of thumb for balance between price and growth. A PEG below 1 may suggest the stock price is low relative to the growth estimate, while a PEG above 1 means investors are paying more for each percentage point of expected growth. This rule is not a law. High-quality companies with durable margins, recurring revenue, low leverage, or lower risk may trade above 1 for long periods. Cyclical or highly uncertain companies may look cheap on PEG but still be risky.

PEG is most useful among companies with positive earnings, comparable business models, and believable growth estimates. It is less useful for turnarounds, commodity cycles, financial firms with unusual accounting, or companies whose earnings are temporarily depressed by one-time charges. If growth is generated by heavy reinvestment at low returns, the PEG may look better than the economics really are. If growth is high because of a temporary rebound, the ratio may be too optimistic.

Limitations and tips

The retention-rate-times-ROE approach is a sustainable-growth shortcut. It assumes retained earnings can be reinvested at the stated ROE and that the business can grow without major changes in leverage, margins, or share count. Real companies face competition, capacity limits, regulation, taxes, dilution, and capital allocation choices. A high ROE based on heavy debt may not deserve the same confidence as a high ROE funded by durable operating advantages.

Use consistent inputs. A trailing EPS figure paired with an optimistic forward growth assumption can make PEG look artificially low. A forward EPS figure paired with a historical ROE can mix periods. Review several scenarios by changing retention and ROE, and compare the output with free cash flow, revenue growth, margin trends, and balance-sheet strength. Treat PEG as a quick comparison metric, not a complete valuation model.

Formula sources and scope

• Principles of Finance — OpenStax, Rice University (peer-reviewed open textbook); 2022 first edition, ISBN 978-1-951693-54-1; Jurisdiction-neutral finance definitions. Supports: EPS growth proxy = retentionRate×ROE/100; P/E=pricePerShare/EPS; PEG=(P/E)/growthPercent. Accessed 2026-07-09.

These sources support the stated formula or definition. Results remain estimates based on the entered values and do not replace financial, legal, tax, lending, or investment advice. Compare periods, units, accounting definitions, and jurisdiction-specific rules before acting.

Sources

• Corporate Finance Institute, PEG Ratio — definition and interpretation of price/earnings to growth.
• Fidelity, Analyzing financial statements — fundamentals used in stock research.