The PEG Ratio: How Much It Moves With the Growth Window
The PEG ratio is a company's price-to-earnings ratio divided by its annual earnings-per-share growth rate in percent. It adjusts the P/E for growth: a P/E of 30 with earnings growing 30% a year gives a PEG of 1.0, and the same P/E with 10% growth gives 3.0.
The PEG ratio exists because a P/E on its own treats a company growing fast and one standing still the same way. Dividing the P/E ratio by the growth rate puts both on one scale: how much of the price is paid per point of growth.
This page shows the formula, works it on Microsoft, then measures eight large companies from their own SEC filings with three different growth periods, which is where the ratio turns out to be far less settled than its single number suggests.
How it works
The formula. PEG = P/E / annual growth in earnings per share, with the growth written as a whole number, so 20% growth is 20, not 0.20.
- The P/E here is the trailing one: the share price divided by the last twelve months of diluted earnings per share.
- The growth rate is the compound yearly rate of change in earnings per share over a chosen period. Many data services use analysts’ forecasts of the next few years instead; this page uses past growth from the filings, because forecasts are opinions and cannot be recomputed.
The usual reading. A PEG of 1.0 means the P/E equals the growth rate. Below 1.0 is often read as cheap for the growth, above 1.0 as expensive. That line is a convention, not a law, and nothing in the formula makes 1.0 special.
What it does not include. Dividends, debt, the quality of earnings, and how long the growth can last all sit outside the ratio. Two companies on the same PEG can carry very different risks.
A worked example
Microsoft on 25 Sep 2026. Close: $516.17. Diluted earnings per share for the fiscal year to 30 Jun 2026, which is also its trailing twelve months: $17.95, from its 10-K filed 29 Jul 2026.
- P/E: $516.17 / $17.95 = 28.8.
- Three-year growth: diluted earnings per share were $9.68 in fiscal 2023. ($17.95 / $9.68) to the power of 1/3, minus 1 = 22.9% a year.
- PEG: 28.8 / 22.9 = 1.26.
Now change only the growth period. One year of growth, $13.64 in fiscal 2025 to $17.95, is 31.6%, which gives a PEG of 0.91. Five years, from $8.05 in fiscal 2021, is 17.4% a year, which gives 1.65. Same price, same earnings, three answers either side of 1.0.
The original data
Eight large companies on 25 Sep 2026 prices. The P/E is trailing twelve months, from the same file this site uses on its P/E page. Growth is the compound yearly change in diluted earnings per share over the latest fiscal year and 1, 3 and 5 years earlier. Each year’s figure is taken from the newest 10-K that reports it, so later stock splits are already reflected; older filings were rescaled only by split ratios, never by restatements.
| Company | P/E | Growth: 1 year | 3 years | 5 years | PEG: 1 year | 3 years | 5 years |
|---|---|---|---|---|---|---|---|
| Microsoft | 28.8 | 31.6% | 22.9% | 17.4% | 0.91 | 1.26 | 1.65 |
| Apple | 39.1 | 22.7% | 6.9% | 17.9% | 1.72 | 5.68 | 2.19 |
| Nvidia | 28.5 | 66.7% | 206.6% | 95.2% | 0.43 | 0.14 | 0.30 |
| Amazon | 20.1 | 29.7% | none | 28.0% | 0.68 | none | 0.72 |
| JPMorgan Chase | 14.7 | 1.4% | 18.3% | 17.7% | 10.75 | 0.80 | 0.83 |
| Walmart | 39.1 | 13.3% | 24.3% | 11.5% | 2.95 | 1.61 | 3.40 |
| Costco | 46.4 | 10.0% | 11.5% | 15.1% | 4.66 | 4.04 | 3.08 |
| Johnson & Johnson | 31.5 | 90.5% | 17.9% | 14.9% | 0.35 | 1.76 | 2.11 |
Only five of the eight gave the same verdict on every window. Nvidia and Amazon were below 1.0 on each one that could be calculated; Apple, Walmart and Costco were above 1.0 on all three. For Microsoft, JPMorgan Chase and Johnson & Johnson, the growth period alone decided whether the stock looked cheap or expensive for its growth.
The widest spread was JPMorgan Chase’s, 10.75 on one year against 0.80 on three, 13.4 times apart. Its diluted earnings per share went from $19.75 in 2024 to $20.02 in 2025, growth of 1.4%, after rising from $12.09 in 2022. Every figure, including the base years, is in the PEG table.
Picking the growth figure
Past growth, over at least three years, smooths out a single strong or weak year, but it looks backwards at a business that may have changed. The five-year window here starts in fiscal 2020 or 2021 for all eight companies.
Forecast growth is what most published PEG figures use. It looks forwards, but it is an estimate, it changes as analysts revise it, and different data services average different forecasts, so the same stock can show different PEGs on two websites on the same day.
The rule that holds either way: compare PEGs only when they use the same kind of growth over the same period, and say which one it is.
When it fails
It fails when the base year is unusual. Johnson & Johnson’s diluted earnings per share were $13.72 in fiscal 2023, $5.79 in fiscal 2024 and $11.03 in fiscal 2025. Measured from the low year, one-year growth is 90.5% and the PEG is 0.35; from further back it is 1.76 or 2.11. The low PEG comes from the dip in the base year, not from the share price.
It fails when earnings were negative. Amazon’s diluted earnings per share were -$0.27 in 2022. There is no growth rate from a loss, so the three-year PEG does not exist, and a data service that shows one has had to pick a workaround.
It fails when growth is extreme. Nvidia’s earnings per share went from $0.17 in fiscal 2023 to $4.90 in fiscal 2026, 206.6% a year. A PEG of 0.14 on that growth means something only if a similar pace continues, and that is the one thing a past figure cannot show.
It fails for slow growers and dividend payers. A hypothetical company growing 3% a year on a P/E of 15 has a PEG of 5.0, even if it pays out most of its profit. The ratio has no place for the dividend.
And it inherits every weakness of the P/E. One-off gains, share buybacks that lift earnings per share, and accounting choices all pass straight through.
Related
The P/E ratio is the number the PEG starts from, and earnings per share is the growth it measures. A growth stock is where the ratio is most often quoted, and valuation covers the wider set of tools it sits among. The Peter Lynch page covers an investor’s habit of setting growth against the multiple paid for it.
Write down which growth figure a PEG uses before comparing it with anything. A PEG built on one unusual year says more about that year than about the company.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.