PEG ratio
P/E divided by the profit growth rate, to compare fast and slow growers.
Fundamental ratios
Live NSE examples below
What is PEG ratio?
The PEG ratio adjusts the P/E for growth. Peter Lynch popularised the idea that a fairly priced company's P/E roughly equals its growth rate, so a PEG of 1. A stock on 30× earnings growing at 40% a year (PEG 0.75) can be cheaper than one on 15× growing at 5% (PEG 3). Investors who buy low-PEG stocks are said to follow a GARP (growth at a reasonable price) style.
Formula
PEG = P/E ÷ annual EPS growth rate (%)
Flash Finance uses the 3-year compounded profit growth as the growth rate
How to read it
- PEG below 1 suggests growth is not fully priced in, if the growth continues.
- The whole ratio rests on the growth estimate. Past growth is only a proxy for future growth.
Common mistakes
- Using PEG with growth that came from a depressed base year, which makes the growth rate (and the PEG) misleading.
Live: NSE stocks matching this today
GARP stocks: PEG below 1 153
| Stock | PEG | P/E | Profit CAGR 3Y |
|---|---|---|---|
| IOCIndian Oil Corporation Limited | 0.06 | 4.08 | +63.0% |
| MUKANDLTDMukand Limited | 0.07 | 3.54 | +53.0% |
| TEMBOTembo Global Industries Limited | 0.07 | 9.67 | +136.0% |
| DBLDilip Buildcon Limited | 0.08 | 5.14 | +61.0% |
| BPCLBharat Petroleum Corporation Limited | 0.09 | 8.71 | +98.0% |
| INDORAMAIndo Rama Synthetics (India) Limited | 0.09 | 9.76 | +107.0% |
| KPELK.P. Energy Limited | 0.10 | 6.31 | +62.0% |
| SEAMECLTDSeamec Limited | 0.11 | 11.28 | +106.0% |
Use it on Flash Finance
Related concepts
P/E ratio (price-to-earnings)How many rupees investors pay for one rupee of annual profit.ROE (return on equity)Annual profit as a percentage of the shareholders' money in the business.ROCE (return on capital employed)Operating profit as a percentage of all the capital a business uses, debt included.
