Peter Lynch Fair Value Calculator and Peter Lynch Formula.
Paste earnings per share (EPS) and sales growth into this Peter Lynch Fair Value Calculator and get the Peter Lynch Fair Value. Earnings per share and sales growth can be found via a Google search, in the annual report on the company’s website under “Investors Relations” or on relevant stock portals.
In our Premium Tool, a large number of different evaluation models are used and the required data is loaded automatically.
Peter Lynch Online Fair Value Calculator
Peter Lynch’s online fair value calculator for calculating the fair value of stocks using Peter Lynch’s formula. With earnings per share and the expected growth rate of the company as inputs, this calculator will give you the fair value of the stock under consideration. Compare it with the current market price of the stock and you will be able to decide whether the stock is undervalued or overvalued.
Peter Lynch was one of the most successful mutual fund managers of all time. He had a unique valuation method for stocks with an emphasis on growth stocks and a PEG ratio (always less than 1) which led to an average annual return of almost 30% from 1977 to 1990 in his flagship Magellan Fund at Fidelity.
Lynch is the author of several stock market books and is credited with making investments simple for the masses by rethinking the way stocks are valued. His rule of thumb as mentioned in his books became the basis for this calculator.
Peter Lynch Fair Value Formula:
Original Peter Lynch formula (rule of thumb) to calculate intrinsic fair value of a stock:
Peter Lynch Fair Value = Earnings per Share * Earnings Growth
If a company grows its profits by 10% a year, its fair value is ten times its profit. Peter Lynch was also a proponent of the Price Earnings Growth (PEG) ratio. Companies with PEG < 1 were considered undervalued and those > 1 were considered overvalued. Companies with PEG = 1 were considered fairly valued. (In our calculator we have set a limit of 8-25% for profit growth.) Any growth lower than 8% is automatically considered at 8% and those higher than 25% are capped at 25% respectively for purposes of calculations.
Peter Lynch did not have a specific formula for stock valuation. Instead, he had a philosophy and a set of criteria that he used to assess the potential of a company and its stock. Some of the criteria he considered when evaluating a stock were growth rate, the price-to-earnings ratio (P/E ratio), price-to-earnings-growth ratio (PEG ratio), earnings surprises, financial health, and market trends.
Lynch emphasized the importance of doing thorough research and understanding a company’s financials and business model before making an investment decision. He believed in identifying undervalued growth companies and holding onto them for the long term.
So, while Peter Lynch did not have a specific formula for stock valuation, his approach was based on a combination of qualitative and quantitative factors that helped him determine the potential of a company and its stock.
Peter Lynch Fair Value Valuation Method
Peter Lynch is a renowned American stock investor who was the manager of the Fidelity Magellan Fund from 1977 to 1990. During his tenure, the fund achieved an average annual return of 30%, making it one of the best-performing mutual funds of all time. Lynch’s approach to stock valuation was based on several criteria, which included the following instruments included in his Peter Lynch Fair Value:
- Growth rate: Lynch believed in investing in companies that had a high growth rate and a proven track record of increasing their earnings and revenue.
- Price-to-Earnings ratio (P/E ratio): Lynch believed in “value investing,” and therefore looked for companies whose stock price was relatively low compared to their earnings.
- PEG ratio: The price-to-earnings growth ratio (PEG) takes into account a company’s growth rate, and Lynch looked for companies with a low PEG ratio, indicating that their stock was undervalued.
- Earnings surprises: Lynch believed in investing in companies that consistently exceeded earnings expectations, as this was a good indication of a company’s financial health.
- Financial health: Lynch looked for companies with a strong balance sheet, low debt-to-equity ratio, and a steady cash flow.
- Market trends: Lynch also paid attention to market trends and looked for industries that were growing and had a positive outlook.
Overall, Lynch’s stock valuation method (Peter Lynch Fair Value) focused on identifying undervalued growth companies and holding onto them for the long term. His philosophy emphasized the importance of doing thorough research and understanding a company’s financials and business model before making an investment decision. The Peter Lynch rule of thumb for fair value is only a rough estimate of the intrinsic value (fair value) of a stock.
With the Fair Value Calculator, you can check stocks much more precisely for their fair value. In addition to the more precise online calculators, which use 7 key figures instead of just 2 fundamental key figures, 12 valuation models are combined in our premium tools and their averages are clearly displayed. With the Premium Tools of the Fair Value Calculator, you no longer have to look for the fundamental key figures yourself. All financial data for more than 45,000 stocks worldwide are automatically loaded and processed in the database. In addition, you can use the stock screener to find cheap fair-value stocks even more easily.
