The formula
PEG = P/E Ratio ÷ Earnings Growth Rate. A P/E of 30 with 30% earnings growth gives a PEG of 1.0.
How to read it
PEG adjusts valuation for growth, so a high-P/E company that's growing fast can still look fairly priced. A rough guide: around 1.0 is fair, well below 1.0 may be cheap, well above 1.0 is getting expensive for the growth on offer.
A negative PEG — from negative earnings or negative growth — is a red flag, not a bargain. It means the denominator is broken, not that the stock is cheap.