A PEG of 1 is the traditional rule of thumb for fair value. The logic is crude but useful: a business growing 30% deserves a higher multiple than one growing 5%, and dividing normalises the comparison.
The flaws are real. PEG ignores risk, capital intensity and how long the growth lasts, and it breaks entirely for low or negative growth. Treat it as a screening filter, never as a valuation.
Example: Northwind Tools trades at 26.5 times forward earnings with consensus growth of 14%, a PEG of 1.9. Northwind Cloud as a standalone would carry a far lower PEG on its 31% growth.
Related: forward-pe, pe-ratio, consensus-estimate, rule-of-40, total-addressable-market