PEG Ratio 5yr — definition:
The five-year Price-to-Earnings-to-Growth ratio (PEG Ratio 5yr) is calculated as a company's current trailing 12-month (TTM) Price-to-Earnings (PE) ratio divided by its earnings per share (EPS) growth over the past five years.
Formula: PEG Ratio 5yr = (Current Price ÷ TTM EPS) ÷ (5-year EPS growth %) In other words, the same trailing 12 months (TTM) period five years ago.
A PEG Ratio 5yr below 1.0 suggests a company may be undervalued relative to its earnings growth. A ratio above 1.0 may indicate the stock is expensive relative to its growth.
The PEG Ratio 5yr is used to value a company while simultaneously accounting for its earnings growth — giving you a more complete picture than the PE ratio alone. It is particularly useful for finding undervalued companies and growth-at-a-reasonable-price (GARP) investments.
Why historical EPS growth — not analyst forecasts?
The screener uses historical five-year EPS growth rather than analyst forecasts. The reason is straightforward: decades of research show that human analysts — including professionals — cannot reliably forecast earnings growth. Historical data, while imperfect, is at least objective and verifiable.
Using the past five years smooths out short-term volatility and gives a more stable view of the company's actual growth trajectory.
How to interpret the PEG Ratio 5yr
The well-known investor Peter Lynch popularised the idea that a "fair value" company has a PE ratio approximately equal to its EPS growth rate — implying a PEG ratio of 1.0. Using this benchmark:
- PEG Ratio 5yr below 1.0 — the company may be undervalued relative to its five-year earnings growth
- PEG Ratio 5yr around 1.0 — fair value; price roughly matches the earnings growth rate
- PEG Ratio 5yr above 1.0 — the stock may be expensive relative to its earnings growth
Note: The PEG = 1.0 rule of thumb was originally established for the one-year PEG ratio. There is limited published research on the precise cut-off for five-year versions, so treat it as a directional guide rather than a hard rule.
How to use the PEG Ratio 5yr in the Quant Investing screener
To find companies with the lowest PEG Ratio 5yr, set the screener slider from 0% to 30%. A custom sort has been applied to the PEG Ratio filter to automatically exclude loss-making companies (negative earnings), which would otherwise produce meaningless or misleading PEG values.
All calculations use a trailing 12-month (TTM) basis — meaning the most recent twelve months of results, not the company's financial year. This ensures the screener always reflects the latest available financial data.
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PEG Ratio 5yr vs PEG Ratio 1yr and 3yr — which to use?
The screener includes three PEG ratio time periods. Here is when each is most useful:
| Ratio | Growth period | Best used for |
|---|---|---|
| PEG Ratio 1yr | Past 12 months EPS growth | Recent momentum; sensitive to short-term swings |
| PEG Ratio 3yr | Past 3 years EPS growth | Medium-term balance between recency and stability |
| PEG Ratio 5yr | Past 5 years EPS growth | Most stable; smooths cyclical and one-off earnings events |
The five-year version is generally preferred for identifying consistently growing companies, as it is less susceptible to a single year's anomalous earnings distorting the ratio.
PEG Ratio 5yr vs PE ratio — what is the difference?
The PE ratio tells you how much you are paying for each unit of current earnings. It says nothing about whether those earnings are growing. A company with a PE of 25 could be cheap if it is growing earnings at 30% per year, or expensive if earnings are flat.
The PEG Ratio 5yr solves this by dividing the PE ratio by the five-year earnings growth rate. This lets you compare a fast-growing company with a high PE ratio to a slow-growing company with a low PE ratio on a like-for-like basis.
Frequently asked questions about the PEG Ratio 5yr
What is a good PEG Ratio 5yr?
Based on Peter Lynch's original framework, a PEG ratio below 1.0 is generally considered attractive — the stock is priced below its earnings growth rate. In the Quant Investing screener, setting the slider to 0%–30% filters for the lowest PEG Ratio 5yr companies across 22,000+ stocks globally.
Why does the screener exclude loss-making companies from PEG ratio results?
If a company has negative earnings (a loss), the PE ratio is meaningless, and dividing it by a growth rate produces a result that cannot be interpreted. The screener's custom sort automatically excludes these companies from PEG ratio filtering so you only see companies with positive earnings where the ratio is valid.
Can the PEG Ratio 5yr be used for all sectors?
It works best for companies with consistent earnings histories. Capital-intensive cyclical businesses (e.g. mining, shipping) can have highly variable five-year EPS growth, which can produce misleading PEG ratios. For these sectors, combining the PEG Ratio 5yr with a quality indicator such as the FS-Score or Piotroski F-Score helps filter out low-quality results.
What is the difference between PEG Ratio 5yr and PEG Ratio 1yr in the screener?
Both divide the current PE ratio by an EPS growth rate, but the time period differs. The 1yr version uses only the past 12 months of growth — highly sensitive to recent earnings. The 5yr version uses five years of compounded growth — more stable, less affected by a single exceptional or weak year.
Is a negative PEG Ratio 5yr meaningful?
No. A negative PEG ratio occurs when a company has negative five-year EPS growth (earnings have shrunk). Dividing a positive PE ratio by a negative growth rate produces a negative number that cannot be usefully interpreted. The screener's custom sort handles this automatically.
Use the PEG Ratio 5yr to find GARP investments across 22,000+ stocks
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This glossary entry was written by Tim du Toit, founder of Quant Investing. Tim has 20+ years of investment experience and is the author of Quantitative Value Investing in Europe: What Works for Achieving Alpha. The Quant Investing screener covers 22,000+ companies across global markets with 110+ ratios updated on a trailing 12-month basis.