When investors evaluate a stock, the Price-to-Earnings (P/E) ratio is often the first number they look at. However, P/E alone cannot give the whole situation. A stock trading at 50x earnings may be a bargain if the company is expanding earnings at 60% per year, yet a stock trading at 12x earnings may be costly if growth has ceased completely.
This is where the Price/Earnings-to-Growth (PEG) ratio comes in. By dividing the P/E ratio by the expected earnings growth rate , the PEG ratio accounts for growth and provides investors with a clearer, more comparable picture of whether a stock or an entire industry is fairly priced.
Key Takeaways
- With a PEG of 1.90, the US market as a whole is firmly in the “Fairly Valued” area, indicating that expectations for aggregate earnings growth are fairly in line with present price.
- Telecom Services is the most undervalued sector, with a PEG of 0.13 and 59.4% predicted 5-year EPS growth, resulting in one of the largest growth-to-price disparities within the dataset.
- Despite 89.5% of companies being losing money on a trailing basis, biotechnology appears to be reasonably priced on a growth-adjusted basis (PEG 0.84); the valuation is driven by the forward growth story.
- Software is not overvalued; System & Application Software has a PEG of 1.65 despite a current P/E of 122x since a large portion of the premium is justified by 22.8% anticipated EPS growth.
- Restaurant/Dining (9.29) and Broadcasting (15.52) have the highest PEGs, mainly because the denominator is nearly meaningless due to a near-zero expected earnings growth rate .
- For the majority of sectors today, forward growth indicators like PEG are more meaningful than backward-looking P/E, as evidenced by the fact that 57% of listed US companies are currently losing money on a trailing basis.
What Is the PEG Ratio?
Investors can determine whether a company’s valuation is justified by its earnings growth by using the Price/Earnings-to-Growth ratio, or PEG ratio. By including growth context, it expands upon the P/E ratio:
PEG = P/E Ratio / Expected Earnings Growth Rate
A PEG of 1.0 is frequently used as a neutral benchmark; the stock is priced exactly in line with its expected earnings growth rate. A value less than 1.0 indicates that the market is underpriced for growth; a value more than 1.0 indicates that a premium is being paid in excess of what growth would justify.
What PEG tells startups and private companies
The PEG ratio is intended for public markets, although the concept underlying it applies to any business, public or private. In its simplest form, PEG asks: Is the price being paid fair for the rate of expected earnings growth?
Investors ask this same question when valuing a startup. Their methods are simply distinct:
EV/Revenue vs. revenue growth – a startup growing at 80% annually can justify a higher revenue multiple than one growing at 20%, just as a high expected earnings growth rate justifies a higher P/E in public markets.
The Rule of 40 – a common SaaS benchmark where growth rate plus profit margin should exceed 40%. Same logic, different formula.
Sector benchmarks – knowing that Software (System & Application) has a public market PEG of 1.65 tells a founder what growth the market is currently rewarding in their sector, which anchors private valuation conversations in real data.
For founders preparing for a fundraise or a 409A valuation, the industry PEG data in this article gives you a useful reference point for where your sector stands and what investors are likely benchmarking against.
How to Interpret PEG Ratios
- PEG < 1.0: Potentially undervalued. Growth expectations may not be fully reflected in the price.
- PEG 1.0 – 2.0: Fairly valued. A reasonable premium over growth expectations is being paid.
- PEG 2.0 – 3.0: Moderately overvalued. Investors are paying a notable premium for anticipated growth.
- PEG > 3.0: Significantly overvalued, or the expected growth rate is very low, inflating the ratio.
Note: PEG ratios are most useful when compared within the same industry. A PEG of 2.0 is normal for a fast-growing software company, but it indicates overvaluation in a slow-growing utility. When assessing these data, always consider the industrial context.
PEG Ratio by Industry
The table below lists 84 US industry segments based on data provided by Professor Aswath Damodaran of NYU Stern School of Business. PEG ratios are derived as Forward PE divided by the 5-year consensus EPS growth rate. Industries with negative or zero growth rates are omitted from the PEG interpretation.
| Industry | PEG Ratio |
|---|---|
| Advertising | 11.16 |
| Aerospace/Defense | 1.41 |
| Air Transport | 0.43 |
| Apparel | 1.99 |
| Auto & Truck | 11.71 |
| Auto Parts | 1.27 |
| Bank (Money Center) | 1.03 |
| Banks (Regional) | 0.9 |
| Beverage (Alcoholic) | 4.26 |
| Beverage (Soft) | 1.7 |
| Broadcasting | 15.52 |
| Brokerage & Inv. Banking | 0.98 |
| Building Materials | 1.68 |
| Business & Consumer Svcs | 1.89 |
| Cable TV | 0.93 |
| Chemical (Basic) | 0.93 |
| Chemical (Specialty) | 2.74 |
| Coal & Related Energy | 0.88 |
| Computer Services | 2.11 |
| Computers/Peripherals | 1.35 |
| Drugs (Biotechnology) | 0.84 |
| Drugs (Pharmaceutical) | 1.4 |
| Education | 0.79 |
| Electrical Equipment | 2.5 |
| Electronics (General) | 2.27 |
| Engineering/Construction | 1.18 |
| Entertainment | 5.64 |
| Env. & Waste Services | 2.81 |
| Farming/Agriculture | 1.83 |
| Financial Svcs (Non-bank) | 1 |
| Food Processing | 6.21 |
| Food Wholesalers | 0.67 |
| Green & Renewable Energy | 3.34 |
| Healthcare Products | 2.74 |
| Healthcare Support Svcs | 1.68 |
| Healthcare IT | 3.34 |
| Homebuilding | 5.72 |
| Hospitals/Healthcare | 1.04 |
| Hotel/Gaming | 1.82 |
| Household Products | 2.45 |
| Information Services | 2.33 |
| Insurance (General) | 1.11 |
| Insurance (Prop/Cas.) | 0.77 |
| Investments & Asset Mgmt | 1.53 |
| Machinery | 1.97 |
| Metals & Mining | 0.86 |
| Office Equipment & Svcs | 1.26 |
| Oil/Gas (Integrated) | 4.6 |
| Oil/Gas (E&P) | 2.59 |
| Oil/Gas Distribution | 1.46 |
| Oilfield Svcs/Equip. | 5.6 |
| Packaging & Container | 0.74 |
| Power | 2.19 |
| Precious Metals | 0.26 |
| Publishing & Newspapers | 1.78 |
| R.E.I.T. | 6.55 |
| Real Estate (Ops & Svcs) | 1.33 |
| Recreation | 1.83 |
| Restaurant/Dining | 9.29 |
| Retail (Automotive) | 1.35 |
| Retail (Building Supply) | 1.31 |
| Retail (Distributors) | 2.37 |
| Retail (General) | 2.86 |
| Retail (Grocery & Food) | 2.27 |
| Retail (REITs) | 7.79 |
| Retail (Special Lines) | 3.08 |
| Semiconductor | 2.13 |
| Semiconductor Equipment | 1.82 |
| Shipbuilding & Marine | 0.83 |
| Software (Entertainment) | 1.44 |
| Software (Internet) | 1.67 |
| Software (System & App) | 1.65 |
| Steel | 1.5 |
| Telecom (Wireless) | 1.29 |
| Telecom. Equipment | 0.87 |
| Telecom. Services | 0.13 |
| Tobacco | 3.24 |
| Transportation | 0.84 |
| Transportation (Railroads) | 2.72 |
| Trucking | 1.62 |
| Utility (General) | 2.96 |
| Utility (Water) | 2.64 |
| Total Market | 1.9 |
| Total Market (ex-financials) | 2.11 |
Source: Damodaran Online – PE Ratio by Sector (US), January 2026, NYU Stern School of Business
Sector-by-Sector Analysis
PEG ratios vary significantly across industries; what looks expensive in one sector may be fairly priced in another. Here is what the data covers: 84 US industry segments spanning 5,994 companies, with PEG ratios ranging from 0.13 to 15.52. Understanding where each sector sits on that spectrum helps investors make smarter, growth-adjusted decisions. Here is what the data reveals.
Industries with the lowest PEG ratios (potentially undervalued)
These industries have the highest growth expectations in comparison to their present price multiples. They demonstrate areas where, if analyst growth estimates are true, investors may expect considerable earnings growth at a relatively low valuation premium.
| Industry | PEG Ratio |
|---|---|
| Telecom. Services | 0.13 |
| Precious Metals | 0.26 |
| Air Transport | 0.43 |
| Food Wholesalers | 0.67 |
| Packaging & Container | 0.74 |
| Insurance (Prop/Cas.) | 0.77 |
| Education | 0.79 |
| Shipbuilding & Marine | 0.83 |
| Drugs (Biotechnology) | 0.84 |
| Transportation | 0.84 |
- Telecom Services (PEG 0.13) benefits from an exceptionally strong expected earnings growth rate of 59.4% over five years, creating one of the widest growth-to-price gaps in the entire dataset. The sector appears to be pricing in far less growth than analysts project, which could reflect market skepticism about telcos’ ability to sustain high growth or a genuine mispricing opportunity.
- Precious Metals (PEG 0.26) benefits from a combination of low forward PE (16.45x) and exceptionally strong expected growth (71.77%). Gold and silver miners’ earnings are highly sensitive to commodity prices, and the elevated growth forecast reflects analyst expectations for continued precious metals demand.
- Air Transport (PEG 0.43) continues its post-pandemic earnings recovery narrative. A forward PE of 11.37x paired with 30.2% expected growth signals that the market has not fully priced in the sector’s earnings rebound creating a compelling growth-adjusted value case for patient investors.
Industries with the Highest PEG Ratios (Significantly Overvalued)
High PEG ratios usually occur in one of two ways: either the market is paying a significant premium for future growth, or the predicted growth rate is so low that even a nominal P/E yields a very high PEG. The second scenario dominates all of the sectors listed below.
| Industry | PEG Ratio |
|---|---|
| Broadcasting | 15.52 |
| Auto & Truck | 11.71 |
| Advertising | 11.16 |
| Restaurant/Dining | 9.29 |
| Retail (REITs) | 7.79 |
| R.E.I.T. | 6.55 |
| Food Processing | 6.21 |
| Homebuilding | 5.72 |
| Entertainment | 5.64 |
| Oilfield Svcs/Equip. | 5.6 |
- Broadcasting (PEG 15.52) is weighed down by a near-flat expected earnings growth rate of just 0.87% over five years, which mathematically inflates the PEG regardless of the underlying multiple. This is a structural feature of the industry, not a signal that broadcasting stocks are richly valued in the traditional sense.
- Restaurant/Dining (PEG 9.29) is constrained by a thin expected earnings growth rate of just 3.53% over five years, pushing the ratio well above what fundamentals alone would suggest. The elevated PEG reflects income-investor demand for the sector rather than growth optimism.
- REITs broadly show elevated PEGs because they are valued on yield, asset quality, and distribution income not earnings growth. Using PEG to evaluate REITs has limited utility, and investors should prioritise metrics like FFO yield and NAV discount/premium instead.
Technology: Fairly Valued Beneath the Headlines
According to headline P/E ratios, the technology sector is frequently believed to be overvalued. The PEG data reveals a more complicated story.
- Software (System & Application) – PEG 1.65: benefits from a strong expected earnings growth rate of 22.76% over five years, which justifies much of the premium investors are paying. Despite headline multiples that look alarming in isolation, the sector lands comfortably in Fairly Valued territory.
- Semiconductor – PEG 2.13: Moderately overvalued, reflecting post-AI boom pricing. The 22.9% growth expectation partially justifies the premium, but the market appears to be pricing in upside scenarios.
- Computer Services – PEG 2.11: Similarly moderately overvalued. Strong demand for managed services and cloud infrastructure drives elevated multiples.
- Computers/Peripherals – PEG 1.35: Fairly valued, buoyed by 25.4% expected growth the hardware cycle has been more resilient than many expected.
Healthcare: A Sector of Contrasts
Healthcare spans a wide PEG range depending on how tech-intensive the sub-sector is:
- Hospitals/Healthcare Facilities – PEG 1.04: Essentially fairly valued, with steady 15% expected growth offsetting a modest P/E.
- Drugs (Biotechnology) – PEG 0.84: Potentially undervalued despite 89.5% of firms losing money on a trailing basis. The forward picture – driven by pipeline commercialisation and FDA approvals – is what drives the valuation.
- Healthcare IT – PEG 3.34: The digital health premium is real. Investors are paying significantly above what EPS growth alone justifies, pricing in structural market share gains.
- Healthcare Products – PEG 2.74: Moderately overvalued, reflecting demand resilience and pricing power in medical devices and diagnostics.
Energy: A Sector in Transition
The energy sector shows dramatically different PEG readings depending on the sub-sector:
- Telecom. Equipment – PEG 0.87: Among the best value plays in the entire dataset – 40.3% expected growth at a forward PE of 39.5x.
- Coal & Related Energy – PEG 0.88: Surprisingly cheap on a growth-adjusted basis. Consensus expects 22.5% EPS growth despite the sector’s structural headwinds, suggesting near-term earnings strength from elevated demand.
- Oil/Gas (Integrated) – PEG 4.60: Significantly overvalued by PEG measures, though this partly reflects the muted 4.14% expected growth rate rather than a sky-high P/E.
- Green & Renewable Energy – PEG 3.34: The green premium is embedded in prices. Investors pay above growth-justified levels for exposure to the energy transition theme.
Financial Services: Diverging Valuations
Financials are one of the few sectors where the majority of firms are profitable (only 14-22% money-losing), making PEG more reliable as a comparison tool:
- Banks (Regional) – PEG 0.90: Potentially undervalued. Regional banks have been rate-cycle beneficiaries, and the 14% expected growth with low P/Es makes this sector a PEG value standout.
- Brokerage & Investment Banking – PEG 0.98: Borderline undervalued. Capital markets activity recovery drives the growth expectation.
- Investments & Asset Management – PEG 1.53: Fairly valued. AUM growth and fee resilience justify a moderate premium.
Market-Wide Observations
Looking across all 84 industries, several patterns emerge from the January 2026 data:
- The market’s overall PEG of 1.90 is consistent with a market that is slightly above fair value in aggregate, but not in bubble territory. Excluding financials, the market PEG rises to 2.11 moderately overvalued.
- 57.16% of all listed US companies are currently loss-making on a trailing basis. This is not a sign of distress; it reflects the large proportion of early-stage technology, biotech, and energy companies in the index. Forward earnings metrics are more meaningful for these firms.
- Growth expectations vary by a factor of 30x across industries from 0.87% in Broadcasting to 71.77% in Precious Metals. This is why industry-adjusted PEG interpretation matters so much.
- Consumer-facing sectors carry systematic premium restaurants, food companies, and consumer brands trade at high PEGs because investors value brand resilience and dividend income over and above what EPS growth alone justifies.
Advantages and Limitations of the PEG Ratio
| Advantages | Limitations |
|---|---|
| Adjusts for growth - makes high-P/E and low-P/E stocks directly comparable | Growth forecasts can be overly optimistic, making PEG appear artificially low |
| Simple single number - easy for any investor to interpret and act on | Breaks down when the expected earnings growth rate is near zero or negative |
| Highlights sectors that are systematically under or overpriced | Norms vary by industry - a PEG of 2.0 means different things in software vs. utilities |
| Best used to compare companies within the same sector | - |
Frequently Asked Questions (FAQ)
What is a good PEG ratio?
A PEG ratio of less than 1.0 is generally regarded as positive, implying that the stock or sector is undervalued relative to the expected earnings growth rate. A PEG between 1.0 and 2.0 is often seen as well valued. However, “good” is always relative to the business; software companies commonly trade at PEGs of 1.5-2.5 and are nonetheless seen as competitively priced, whereas the same ratio in the utilities sector would indicate overvaluation.
What’s the difference between the P/E and PEG ratios?
The P/E ratio indicates how much investors pay for each dollar of current earnings. The PEG ratio incorporates a growth component by dividing the P/E by the expected earnings growth rate. A high P/E ratio does not necessarily indicate overvaluation. For example, a company growing at 40% per year may warrant a P/E ratio of 60x. The PEG ratio helps to determine whether the multiple is justified by the growth being given. In general, the PEG ratio is more beneficial for growth-oriented companies and industries; for older, low-growth companies, alternative metrics such as dividend yield or EV/EBITDA may provide more information.
Can the PEG ratio be negative?
Yes, when the P/E ratio or predicted growth rate is negative. A negative PEG does not imply “very undervalued”; rather, it indicates that the traditional interpretation fails completely and the ratio should be disregarded.
What does the PEG ratio reveal about an entire industry?
It indicates if the market is pricing in consensus growth predictions for that sector or leaving a void. A low industry PEG indicates that the market is skeptical about expected growth – or that the area is overlooked. A high PEG indicates that investors are paying more than growth alone justifies, typically for yield, brand, or asset quality reasons.
Elevate Your Portfolio with Intelligent Insights
The PEG ratio analysis reveals significant market inefficiencies across industries; these disparities suggest a potential market dynamics shift favoring value-conscious investors. While PEG ratios are built for public markets, the same growth-adjusted thinking applies when positioning a private company’s valuation – whether for a fundraise, employee equity plan, or 409A.
Eqvista helps startups and private companies manage cap tables, run 409A valuations, and model equity scenarios so founders can make growth-adjusted decisions with the same rigor public-market investors apply.
