PEG Ratio Calculator

What is the PEG Ratio and Why PE Alone Misleads You

The PE ratio tells you how much the market is paying per rupee of current earnings. The PEG ratio adjusts for growth — dividing PE by the company's earnings growth rate. The insight behind PEG is obvious once you see it: a company growing earnings at 40% annually deserves a higher PE than one growing at 5%. Treating them identically by PE is comparing a bullet train to a bullock cart.

A company trading at a PE of 60 sounds expensive until you learn earnings are growing at 65% annually — giving a PEG of 0.92, which actually signals undervaluation. Conversely, a PE of 18 looks cheap until growth is only 6%, giving a PEG of 3, which signals overvaluation.

The rule of thumb: PEG below 1 means you are potentially paying less than the growth justifies. PEG above 2 means the market has priced in growth that may not materialise. This is not a binary buy/sell rule — it is a starting filter.

Example: TCS trades at a PE of 28. Analysts project 12% EPS growth for the next 3 years. PEG = 28 ÷ 12 = 2.33. At this PEG, the market is pricing in steady but premium growth — fair only if TCS sustains its margin profile and deal pipeline.

PEG Across Indian Sectors — IT vs Banking vs Pharma

PEG interpretation depends heavily on which sector you are analysing. Indian IT companies like Infosys, Wipro, and HCL Technologies typically trade at PE multiples of 22–35, with growth rates of 8–15%. Their PEGs cluster between 1.5 and 2.5 — the market pays a premium for their dollar-earning, cash-generating business models.

Private sector banks like HDFC Bank and Kotak Mahindra Bank trade differently. Their PE ratios look modest at 18–25, but earnings growth is also moderate at 12–18%, putting PEG around 1.2–1.8. Banking PEG analysis works best using Price to Adjusted Book, not PE, since loan-book quality can distort earnings.

High-growth consumer tech and specialty chemical companies routinely carry PEGs above 3 on NSE. Investors in these names are not buying current earnings — they are buying the expectation that today's 80% PE will compress as profits scale. This is not irrational, but it requires the growth thesis to actually execute.

When PEG Fails — Cyclicals and Capital-Intensive Businesses

PEG breaks down for cyclical companies — steel, cement, metals, commodity chemicals — because their earnings are driven by commodity price cycles, not operational execution. A steel company like JSW Steel might show 80% earnings growth in a upcycle simply because hot-rolled coil prices rose. Applying PEG here would suggest massive undervaluation that does not exist — the growth is not structural, it is cyclical.

Capital-intensive infrastructure companies present a different problem. NTPC, NHAI-linked companies, and port operators often have long gestation periods where capital is deployed but earnings are suppressed. Their growth rates look low for years and then jump. PEG during the investment phase consistently suggests overvaluation even when the business is compounding value.

For banking and financial services, use PEG based on book value growth rather than EPS growth — return on equity and asset quality drive value creation, not just reported earnings which can be managed through provisioning cycles.

Growth Rate Selection — The Number That Changes Everything

The denominator in PEG is the growth rate — and the choice of which growth rate to use changes everything. You can use trailing 3-year EPS growth, analyst consensus estimates for next 2–3 years, or long-term sustainable growth. Each gives a different PEG for the same stock.

Be sceptical of using a single year's growth as the denominator. Bajaj Finance showed 40%+ EPS growth in FY22 as it bounced back from COVID provisions. Using that year's growth gave a PEG well below 1 — but that was base-effect flattery, not sustainable speed. Three-year forward consensus growth from multiple analyst estimates is the most reliable denominator for Indian large-caps.

For mid and small-cap stocks on NSE/BSE, analyst coverage is thin. You may need to estimate growth from revenue CAGR, margin trajectory, and capacity addition plans from annual reports — which is where fundamental research earns its keep.