What is PEG Ratio? How to Use It to Screen Indian Stocks

PEG ratio combines P/E with earnings growth to tell you if a stock is cheap or expensive relative to its growth rate. Here's how to use it for Indian stocks.

What is the PEG Ratio?

The PEG ratio (Price/Earnings-to-Growth) is one of the most useful valuation metrics for growth investors. While the P/E ratio tells you how much you're paying for current earnings, PEG adjusts that for the company's earnings growth rate.

PEG = P/E ÷ Earnings Growth Rate (%)

A PEG of 1.0 is considered fairly valued. Below 1.0 may indicate undervaluation; above 2.0 typically signals overvaluation.

Why P/E Alone Isn't Enough

A company with a P/E of 40 looks expensive. But if it's growing earnings at 50% per year, its PEG is 0.8 — potentially undervalued.

Conversely, a P/E of 15 looks cheap — but if earnings are growing at only 5%, the PEG is 3.0, which is expensive.

How ExcelScreener Calculates PEG

ExcelScreener uses 3-year PAT CAGR (Compound Annual Growth Rate) as the denominator — the same methodology as screener.in's "Profit Var 3Yrs". This is more stable than using a single year's growth because:

• •One exceptional year doesn't distort the result
• •CAGR uses endpoint-to-endpoint data, not an average of volatile year-on-year changes
• •Matches how analysts at screener.in and Motilal Oswal compute PEG

Formula used:

PAT CAGR 3Y = (PAT_FY25 / PAT_FY22)^(1/3) - 1
PEG = Current P/E ÷ PAT CAGR 3Y (%)

PEG Scoring in ExcelScreener

Which Indian Stocks Have Good PEG Ratios?

Generally, quality compounders in sectors like IT services, specialty chemicals, and FMCG tend to have PEG ratios between 1.0–2.0. Cyclical sectors (metals, commodities) often have distorted PEG values because earnings are lumpy.

Avoid using PEG for:

• •Financial sector stocks (banks, NBFCs) — earnings growth doesn't map to operational efficiency
• •Real estate companies — revenues are lumpy by design
• •Companies with recent loss years — the CAGR base becomes meaningless

How to Screen Stocks by PEG

The easiest way is to put your watchlist in a Google Sheet and run ExcelScreener. It computes PEG automatically for every stock and writes it to your sheet alongside the score, growth metrics, and red flags.

[Run ExcelScreener on your watchlist →](/screener)

Apply this to your watchlist

ExcelScreener runs every check covered in this article — automatically — and writes scores and flags to your Google Sheet.