Peter Lynch Fair Value
The Peter Lynch Fair Value method estimates a stock’s intrinsic value based on its expected earnings growth. Lynch believed that the fair P/E ratio of a company is equal to its earnings growth rate, which forms the foundation of this valuation approach. It is primarily used for identifying reasonably priced growth stocks.
Exact formula used in code
In the code: EPS_Growth is a capped growth rate; EPS_TTM is trailing twelve months EPS. Both values must be present and positive.
Who Is Peter Lynch?
Peter Lynch is one of the most successful and influential investors in modern history. He managed the Fidelity Magellan Fund (1977–1990), achieving an extraordinary 29% average annual return, making it the best-performing mutual fund in the world during his tenure. Lynch is known for his "invest in what you know" philosophy and his focus on growth at a reasonable price (GARP). His books, One Up on Wall Street and Beating the Street, are considered investing classics.
Notes
- Not suitable for negative-earnings companies.
- Simple but often overestimates companies with volatile growth.
Assumptions & Practical Notes
- EPS Growth is capped using company size logic; negative growth or negative EPS disables the method.
- Because this is a simple heuristic, it's intended as a cross-check to other methods rather than a standalone valuation.
- Result is validated against current price bounds (0.25x to 4x) before being used.