The PEG ratio divides a company's P/E ratio by its earnings growth rate, popularized by Peter Lynch as a shorthand for judging whether a growth stock's valuation is reasonable relative to how fast it is growing. The intuition: a P/E of 20 on a company growing earnings 20% annually (PEG of 1.0) is a materially different proposition than a P/E of 20 on a company growing 5% annually (PEG of 4.0), even though the two companies have identical P/E ratios.
Lynch generally considered a PEG below 1.0 attractive — the market is pricing the stock at a discount to its growth rate — and a PEG above 2.0 a sign the growth premium has become excessive. The PEG ratio is a heuristic, not a valuation model: it assumes a roughly linear relationship between P/E and growth that doesn't hold precisely, it says nothing about how sustainable the growth rate is, and it becomes unreliable or meaningless when earnings growth is negative, near zero, or driven by a low prior-year base rather than genuine business improvement.
PEG Ratio = P/E (TTM) / EPS Growth Rate (TTM, 1Y)
The conventional reading is that a PEG ratio below 1.0 means the stock's P/E is low relative to its earnings growth, around 1.0 is fairly valued, and well above 1.0 is expensive for its growth. GeminIQ's data shows why that rule needs care: about 34% of US companies with a market capitalization above $2 billion have a negative or undefined PEG because their earnings shrank or turned to a loss, and about 39% show a PEG below 1.0.
Many of those low readings are not bargains. GeminIQ's PEG uses trailing one-year EPS growth, and a company whose earnings rebound from a depressed year can post growth of several hundred percent, which drives its PEG toward zero even though that pace cannot continue. For that reason GeminIQ does not publish a typical PEG range; the distribution is dominated by one-off growth rates.
Use the PEG ratio as a screen rather than a verdict. Check that the growth behind it is sustained over several years, that earnings are positive, and that the company's P/E is reasonable for its industry before treating a low PEG as a sign of value.
GeminIQ computes the PEG ratio as trailing twelve-month P/E divided by trailing-twelve-month EPS growth over the prior year, both sourced from as-filed SEC data — see [P/E Ratio](/metrics/valuation-metrics/price-to-earnings-ratio) and [EPS Growth](/metrics/growth-metrics/earnings-per-share-growth) for how each input is calculated. The growth rate is expressed as a whole number (e.g., 20 for 20% growth) rather than a decimal, matching Lynch's original convention.
A: Conventionally, below 1.0 suggests the P/E is low relative to earnings growth and above 1.0 suggests the opposite. Treat it as a screen, not a verdict: about 34% of US companies above $2 billion in market cap have a negative or undefined PEG, and many very low readings come from one-year earnings rebounds that will not repeat.
A: The PEG ratio was designed to test whether the premium the market pays for earnings (via the P/E ratio) is justified by how fast those same earnings are growing — so it pairs an earnings-based price multiple with an earnings-based growth rate. Revenue growth can diverge significantly from earnings growth (through margin changes, share buybacks, or one-time items), which is why GeminIQ's screener also exposes revenue growth as its own filterable field for building a more complete GARP screen alongside the PEG ratio.
A: A negative PEG ratio usually results from negative earnings growth (a shrinking or newly-loss-making earnings base) rather than a mathematically meaningful "cheap" signal, and should generally be excluded from screens rather than interpreted at face value. The same caution applies to a very low positive growth rate in the denominator, which can produce an extremely high PEG ratio from a small, possibly noisy, growth figure.
A: PEG ratios diverge most often because of differences in the growth rate used — trailing vs. forward growth, GAAP EPS vs. adjusted/non-GAAP EPS, and one-year vs. multi-year growth windows all produce different denominators for the same company. GeminIQ computes both P/E and EPS growth from as-filed GAAP figures rather than adjusted or forward estimates, so the PEG ratio reflects the company's own reported results.
Further Reading: GARP Investing: Peter Lynch's PEG Ratio Strategy Explained
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