Price to earnings over growth (PEG)
The price to earnings ratio divided by the rate at which earnings per share actually grew over the last five filed years.
It is the standard shorthand for asking whether a high multiple is justified by the growth behind it.
How it is computed here
P/E / five-year compound annual growth in earnings per share (percent per year)
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under value. Neither a high nor a low reading is good on its own, so it is never coloured as one.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 1.00 | Growth costs less than its rate |
| 1.00 to 2.00 | Growth roughly fairly priced |
| 2.00 and above | Growth expensively priced |
A practitioners’ convention, not an estimated boundary. Lynch, One Up on Wall Street (1989), the growth-at-a-reasonable-price rule of 1.0.
When it misleads
- Both inputs are unstable, and dividing one unstable number by another produces a third that is worse than either.
- Meaningless when growth is negative or near zero: the ratio explodes or flips sign. Those cases read n/a here rather than as a number.
- The growth rate is what the filings record, not what anyone expects next. A company whose past five years do not describe its next five is measured on the wrong thing.
- Withheld entirely below five filed fiscal years, and when either end of the window lost money: a compound rate out of a loss has no value.
- It silently assumes growth is worth the same whatever the return on the capital that produces it, which is the opposite of true.
Questions
How is price to earnings over growth calculated?
P/E / five-year compound annual growth in earnings per share (percent per year). Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does price to earnings over growth tell a value investor?
It is the standard shorthand for asking whether a high multiple is justified by the growth behind it.
When does price to earnings over growth mislead?
Both inputs are unstable, and dividing one unstable number by another produces a third that is worse than either. Meaningless when growth is negative or near zero: the ratio explodes or flips sign. Those cases read n/a here rather than as a number. The growth rate is what the filings record, not what anyone expects next. A company whose past five years do not describe its next five is measured on the wrong thing. Withheld entirely below five filed fiscal years, and when either end of the window lost money: a compound rate out of a loss has no value. It silently assumes growth is worth the same whatever the return on the capital that produces it, which is the opposite of true.