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Metric

PEG Ratio

Category

Valuation Metrics

Definition

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.

Formula

PEG Ratio = P/E (TTM) / EPS Growth Rate (TTM, 1Y)

How GeminIQ calculates this metric

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.

FAQ

Q: Why does the PEG ratio use EPS growth instead of revenue growth?

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.

Q: What does a negative or undefined PEG ratio mean?

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.

Q: Why might PEG ratios differ between platforms?

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.

Now put it to work. Screen every US public company by PEG Ratio.

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