What is the PEG ratio?
In short: the PEG ratio is a company's price-to-earnings ratio divided by its expected annual earnings growth rate, in percent. It adjusts the P/E for growth: a P/E of 20 with 20% expected growth gives a PEG of 1, which is conventionally read as growth fairly priced.
How is the PEG ratio calculated?
PEG = P/E ÷ expected annual earnings growth (%). A company on a P/E of 30 expected to grow earnings 15% a year has a PEG of 2. The growth figure is usually analysts' forecast for the next few years.
What does the PEG ratio mean?
A PEG ratio below 1 is conventionally read as growth not fully priced in: the P/E is lower than the expected growth rate. Around 1 suggests growth fairly priced, and above 2 means paying a lot for the growth expected. The reading is only as reliable as the growth forecast behind it.
Below 1 is conventionally read as "growth not fully priced in"; above 2 as paying a lot for the growth expected.
| Company | PEG ratio (4 October 2026) |
|---|---|
| Wesfarmers (WES.AX) | 1.5 |
| BHP (BHP.AX) | 2.9 |
| Commonwealth Bank (CBA.AX) | 3.5 |
Where the PEG ratio misleads
- It depends entirely on the forecast. Growth estimates are often wrong, and a small change moves the PEG a lot.
- Slow growers look expensive even when they are steady, cash-rich businesses.
- It ignores dividends, which make up much of the return from mature companies.
How ShareSift uses it
On ShareSift, a PEG ratio below 1 earns 10 of 100 points in the ShareSift value score.
Frequently asked questions
What is a good PEG ratio?
A PEG below 1 is the traditional sign that a company's growth is not fully reflected in its price, and around 1 is often read as fairly priced. But the ratio is only as good as the growth forecast behind it, and forecasts for several years ahead are frequently wrong.
Why does a profitable company have a high PEG?
A high PEG usually means slow expected growth relative to the P/E. Mature companies such as large banks often have modest growth forecasts, so even a moderate P/E produces a high PEG. For dividend-paying businesses, the PEG understates the return because it ignores dividends.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.