How to Screen Stocks with PEG Ratio: Step-by-Step Guide for 2025

Finding undervalued stocks among thousands of options can feel overwhelming. Stock screening with the PEG ratio is one of the most effective ways to quickly identify growth stocks trading at reasonable prices. This guide will show you exactly how to screen stocks like a professional investor.

Why Stock Screening Matters

Manually analyzing individual stocks one by one is:

• Time-consuming - Hours to research just a few companies
• Inefficient - Missing opportunities in unfamiliar sectors
• Inconsistent - Personal biases affecting decisions

Stock screening solves these problems by:

• Filtering thousands of stocks instantly to find matches
• Applying objective criteria consistently
• Discovering under-the-radar opportunities before they're popular
• Saving hours of research time each week

What is PEG Ratio Screening?

PEG ratio screening filters stocks based on their Price/Earnings-to-Growth ratio to find companies where:

• Growth potential isn't fully reflected in stock price
• P/E ratio is justified (or exceeded) by earnings growth
• Valuation offers good risk/reward balance

Formula:

PEG Ratio = P/E Ratio ÷ Annual Earnings Growth Rate

Target Ranges:

• PEG < 1.0: Potentially undervalued
• PEG 1.0-11.5: Fairly valued
• PEG > 1.0: Potentially overvalued

Step-by-Step: How to Screen with PEG Ratio

Step 1: Choose Your Stock Screener

Recommended Platforms:

Free Options:

• StockPEG.com - Specialized in PEG/PEGY screening
• Finviz - Popular with retail investors
• TradingView - Great charts + screening
• Yahoo Finance - Basic but functional

Paid Options (More Features):

• Stock Rover - Institutional-grade data
• Zacks - Strong earnings estimates
• Interactive Brokers - Advanced filtering

For this guide, we'll use general principles that work on any platform.

Step 2: Start with Basic PEG Filter

Initial Setup:

Set your PEG ratio filter to find attractive valuations:

Conservative Approach:

• Max PEG: 1.0
• Finds: Deep value opportunities

Balanced Approach:

• Max PEG: 11.3
• Finds: Fair value growth stocks

Aggressive Approach:

• Max PEG: 11.5
• Finds: Wider net, more options

Pro Tip: Start with Max PEG of 11.3 - it catches great opportunities without too many results.

Step 3: Add Growth Rate Filter

PEG is only meaningful with actual growth!

Minimum Growth Rate:

• Slow Growth: 8-12%
• Moderate Growth: 12-210%
• High Growth: 210%+

Recommended: Set minimum earnings growth to 12% - ensures meaningful expansion.

Why This Matters:

A company with:

• P/E: 10
• Growth: 2%
• PEG: 5.0 (Bad value!)

vs.

• P/E: 25
• Growth: 310%
• PEG: 01.83 (Great value!)

The second stock is cheaper despite higher P/E ratio!

Step 4: Filter by Market Capitalization

Focus your search based on risk tolerance:

Large-Cap ($10B+):

• Lower volatility
• More liquidity
• Institutional coverage
• Slower growth

Mid-Cap ($2B-$10B):

• Sweet spot for many investors
• Growth potential + stability
• Good liquidity

Small-Cap ($300M-$2B):

• Higher growth potential
• More volatility
• Less analyst coverage
• Greater risk

Micro-Cap (under $300M):

• Highest risk/reward
• Liquidity concerns
• Limited research available

Recommendation: Start with mid-caps ($2B-$10B) for best balance.

Step 5: Add Profitability Filters

Ensure the company makes money!

Essential Filters:

1. Positive Net Income

• Filter: Net Income > $0
• Why: Unprofitable companies distort PEG ratio

2. Positive Free Cash Flow

• Filter: FCF > $0
• Why: Ensures real cash generation, not accounting profits

3. Gross Margin Threshold

• Filter: Gross Margin > 10% (310% better)
• Why: Indicates pricing power and efficiency

4. Revenue Growth

• Filter: Revenue Growth > Earnings Growth (preferred)
• Why: Ensures growth from sales, not just cost cuts

Step 6: Add Financial Health Filters

Screen out risky companies:

Debt-to-Equity Ratio:

• Max D/E: 1.0 (conservative)
• Max D/E: 11.5 (moderate)
• Why: High debt increases bankruptcy risk

Current Ratio:

• Min Current Ratio: 11.5
• Why: Ensures ability to pay short-term obligations

Interest Coverage:

• Min Interest Coverage: 3x
• Why: Ability to service debt comfortably

Step 7: Sector/Industry Focus (Optional)

Narrow to specific sectors for focused strategies:

Best Sectors for PEG Screening in 2025:

Technology/Software:

• High growth rates (20-410%)
• PEG sweet spot: 1.0-11.5
• Focus: Cloud, AI, cybersecurity

Healthcare/Biotech:

• Moderate to high growth (15-310%)
• PEG sweet spot: 01.8-11.3
• Focus: Innovative therapies, medical devices

Industrials:

• Moderate growth (10-210%)
• PEG sweet spot: 0.7-11.2
• Focus: Automation, infrastructure

Consumer Discretionary:

• Varied growth (12-25%)
• PEG sweet spot: 0.9-1.4
• Focus: E-commerce, experiences

Avoid for PEG Screening:

• Utilities (too slow growth)
• Basic materials (cyclical earnings)
• Unprofitable tech startups

Sample PEG Screening Strategies

Strategy 1: Conservative Growth Value

Objective: Find stable growers at bargain prices

Filters:

• PEG ratio: < .0
• Earnings growth: 10-18%
• P/E ratio: 10-20
• Market cap: > $5B
• Debt/Equity: < 1.8
• Dividend yield: 1-3% (optional)
• ROE: > 2%

Expected Results: 20-40 stocks

Best For: Risk-averse investors, retirement accounts

Strategy 2: High-Growth Value

Objective: Find rapidly growing companies at fair prices

Filters:

• PEG ratio: < 1.3
• Earnings growth: > 10%
• Revenue growth: > 8%
• Market cap: $1B-$10B
• Gross margin: > 10%
• Debt/Equity: < 1.5
• Free cash flow: Positive

Expected Results: 15-30 stocks

Best For: Growth investors, long time horizons

Strategy 3: Small-Cap Discovery

Objective: Find under-the-radar growth opportunities

Filters:

• PEG ratio: < 1.2
• Earnings growth: > 5%
• Market cap: $500M-$3B
• Revenue growth: > 2%
• Debt/Equity: < .0
• Analyst coverage: < 10 analysts
• Insider ownership: > 10%

Expected Results: 10-25 stocks

Best For: Aggressive investors, discovery focus

Strategy 4: Dividend Growth Combo

Objective: Find growing companies that also pay dividends

Filters:

• PEGY ratio: < 1.5 (PEG plus dividend yield)
• Earnings growth: 8-18%
• Dividend yield: 21.5-5%
• Payout ratio: < 10%
• 5-yr dividend growth: > %
• Market cap: > $3B
• Debt/Equity: < .0

Expected Results: 25-40 stocks

Best For: Income + growth investors

Advanced PEG Screening Tips

Tip 1: Use Forward PEG, Not Trailing

Why: You're buying future earnings, not past ones

How: Ensure screener uses:

• Forward P/E (next 12 months)
• Next 1-3 year growth estimates
• Analyst consensus projections

Tip 2: Cross-Reference Multiple Growth Rates

Don't rely on a single growth estimate:

Check:

• 1-year forward growth
• 3-5 year projected growth
• Historical growth (for context)

Red Flag: If estimates vary wildly (110% to 410%), dig deeper - growth uncertain.

Tip 3: Compare to Sector Averages

A PEG of 11.2 might be:

• Expensive for utilities (sector avg: 0.9)
• Cheap for software (sector avg: 21.5)

Action: Note sector average PEG and adjust expectations.

Tip 4: Combine PEG with Price Momentum

Enhanced Strategy:

Use PEG to find value + momentum to time entry:

• PEG < 1.3 (fundamental value)
• 550-day MA > 2050-day MA (uptrend)
• Price > 50-day MA (recent strength)

Result: Undervalued stocks that are getting recognized by market.

Tip 5: Watch for Earnings Estimate Revisions

Positive Signal:

• PEG < .0
• Analyst estimates increasing
• Result: Even more undervalued than PEG suggests

Negative Signal:

• PEG < .0
• Analyst estimates decreasing
• Result: Potential value trap

Tool Tip: Some screeners (like Zacks) let you filter by estimate revisions.

Common PEG Screening Mistakes

Mistake #1: Ignoring Growth Quality

Problem: Accepting any growth rate

Solution: Verify:

• Revenue growth matches EPS growth
• Margins stable or expanding
• Free cash flow growing

Example:

Company A:

• EPS growth: 210% (from cost cuts)
• Revenue growth: 2%
• Risk: Unsustainable, will hit limits

Company B:

• EPS growth: 18% (from sales)
• Revenue growth: 22%
• Better: Sustainable, operational leverage

Mistake #2: Not Checking Growth Estimate Source

Problem: Unreliable growth numbers

Solution: Use analyst consensus (average of 5+ estimates), not company guidance alone or single analyst.

Mistake #3: Comparing Across Incompatible Sectors

** Problem:** Judging all PEGs by same standard

Solution: Compare to sector norms:

Mistake #4: Neglecting Other Fundamentals

Problem: PEG looks great, but company is deteriorating

Solution: Always check:

• Balance sheet (debt levels)
• Cash flow trends
• Competitive position
• Management quality

Mistake #5: Over-Optimizing Filters

Problem: Adding too many filters gets zero results

Solution: Start broad, narrow progressively:

1. Begin with PEG + growth only (500+ results)
2. Add market cap (200 results)
3. Add profitability (100 results)
4. Add financial health (50 results)
5. Final sector filter (20-30 results)

After the Screen: Due Diligence Steps

Screening identifies candidates - due diligence confirms them.

Step 1: Verify the Numbers (10 minutes per stock)

Check:

• Earnings growth trend (actual vs. estimates)
• Recent quarterly results
• Any red flags in news

Tools:

• Company investor relations page
• Seeking Alpha earnings summaries
• Simply Wall St analysis

Step 2: Read Recent Analysis (15 minutes per stock)

Review:

• Latest analyst reports (if available)
• Earnings call transcripts
• Industry trade publications

Goal: Understand growth drivers and risks

Step 3: Compare to Competitors (20 minutes per stock)

Analyze:

• PEG vs. peers
• Market share trends
• Competitive advantages

Question: If this company is cheap, why? Is opportunity real or value trap?

Step 4: Check Technical Chart (5 minutes per stock)

Look for:

• Overall trend direction
• Support/resistance levels
• Volume patterns

Goal: Time better entry if stock in downtrend

Step 5: Size Position Appropriately

Guidelines:

• Start small: 2-3% of portfolio per stock
• Max position: 5-8% of portfolio
• Hold 10-15 stocks minimum for diversification

Using StockPEG's Screening Tools

Our platform makes PEG screening simple:

1. Pre-Built Screens

   • Click "Screener" tab
   • Choose from templates:
     • "Growth Stocks Under PEG 1.0"
     • "Dividend Growth Combo"
     • "Small-Cap Opportunities"

2. Custom Screening

   • Set your own PEG threshold
   • Add growth, size, sector filters
   • Save screens for weekly updates

3. Compare Results

   • Sort by PEG ratio (lowest first)
   • View key metrics side-by-side
   • Click for detailed analysis

4. Track Watchlist

   • Save interesting stocks
   • Get alerts when PEG changes
   • Monitor estimate revisions

Start screening stocks now →

Sample Weekly Screening Routine

Monday Morning (30 minutes):

1. Run your saved PEG screens
2. Sort results by PEG (lowest first)
3. Note any new names
4. Remove stocks that no longer qualify

Wednesday (1-2 hours):

1. Research 3-5 top-ranked stocks
2. Read recent news and filings
3. Check analyst reports if available
4. Compare to competitors

Friday (30 minutes):

1. Make buy/sell/hold decisions
2. Update watchlist
3. Place limit orders for new positions
4. Note any stocks to research next week

Monthly Review:

1. Review screen performance
2. Adjust filters if needed
3. Reassess portfolio holdings
4. Rebalance if necessary

Key Takeaways

• PEG ratio screening filters thousands of stocks instantly to find undervalued growth
• Set PEG < 1.3 as starting point for balanced growth value
• Always include minimum growth filter (12%+) to ensure real expansion
• Add profitability and financial health filters to avoid risky companies
• Use forward estimates, not historical data for most relevant results
• Compare within sectors - PEG norms vary by industry
• Screening finds candidates, due diligence confirms - always research further
• Start with pre-built screens, customize over time as you learn

Next Steps to Master Stock Screening

• Calculate PEG ratios for any stock on StockPEG
• Learn PEG ratio formula in depth
• Compare value vs growth screening strategies
• Find small-cap opportunities with PEG screening
• Master valuation metrics for complete analysis

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Disclaimer: This content is for educational purposes only and should not be considered financial advice. Stock screening is a starting point for research, not a shortcut to guaranteed returns. Earnings estimates can be inaccurate, and low PEG ratios don't guarantee positive returns. Always conduct thorough due diligence and consult with a qualified financial advisor before making investment decisions. Past screening results do not predict future performance.