Earnings Growth Valuation Calculator
Estimate a stock's fair value by combining projected earnings growth with a target PEG ratio. Use this when evaluating whether a growth stock is priced fairly relative to its earnings trajectory.
Last updated: September 2026
Formula below · 2 sources (investor.gov, Wikipedia) · Updated Sep 2026
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About this calculator
This calculator applies the PEG (Price/Earnings-to-Growth) ratio framework to project a stock's fair value over a chosen time horizon. Because PEG = P/E ÷ growth rate (in %), the P/E that a given PEG target justifies is: Fair P/E = targetPEG × growthRate. The formula is: Fair Value = currentEPS × (1 + growthRate/100)^timeHorizon × targetPEG × growthRate. First, current EPS is compounded forward at the expected annual growth rate for the number of years in your horizon. That future EPS is then multiplied by the PEG-justified P/E. A target PEG of 1.0 (a P/E equal to the growth rate) is the classic fair-value benchmark; a more conservative target such as 0.8 or 0.5 demands more growth per unit of P/E and so produces a lower fair value, while an aggressive 1.2 produces a higher one. Your current P/E is used to compare the result with today's price (current EPS × current P/E): if the PEG-justified P/E is well below the current P/E, the market is already paying more for growth than your target allows. This model works best for consistent-growth companies and should be paired with qualitative research.
How to use
Suppose a stock has a current EPS of $3.00, a P/E of 20× (so it trades at $60), an expected annual growth rate of 15%, a target PEG of 1.0, and you have a 3-year horizon. Step 1 — compound EPS: $3.00 × (1 + 0.15)^3 = $3.00 × 1.5209 = $4.56. Step 2 — PEG-justified P/E: 1.0 × 15 = 15×. Step 3 — fair value: $4.5626 × 15 = $68.44. Compared with today's $60 price, that is about 14% upside over three years. With a conservative 0.8 target the fair P/E falls to 12× and the target to $54.75 — below today's price.
Frequently asked questions
What is the PEG ratio and why does it matter for stock valuation?
The PEG ratio divides a stock's P/E ratio by its expected earnings growth rate, giving a growth-adjusted measure of value. A PEG of 1.0 is traditionally considered fair value, meaning investors are paying exactly one unit of P/E for each percentage point of growth. Stocks with a PEG below 1.0 may be undervalued relative to their growth, while those above 1.0 may be overpriced. It is especially useful for comparing high-growth companies where a raw P/E ratio alone can be misleading.
How does the investment time horizon affect the earnings growth valuation result?
A longer time horizon allows more compounding cycles to increase projected EPS, which directly raises the estimated fair value. For example, a 15% growth rate doubles EPS in roughly five years, significantly lifting the projected price target. This means the same stock can appear cheap on a five-year view but fairly valued on a one-year view. Investors should match the horizon to their actual holding intention and reassess if the growth assumptions change.
What are the limitations of using a PEG-based valuation model?
The PEG model relies heavily on growth rate estimates, which are inherently uncertain and can vary widely between analysts. It assumes the market will pay the PEG-justified multiple (target PEG × growth rate) at the end of the horizon, which rarely holds exactly in practice as market sentiment shifts. The model also does not account for debt levels, dividend payments, or changes in the competitive landscape. It works best as a quick screening tool rather than a definitive valuation method, and should be supplemented with discounted cash flow analysis or comparable company analysis.