Peter Lynch Fair Value Calculator

📊 "Invest in What You Know"

Lynch famously discovered great investments in everyday life—Dunkin' Donuts, The Gap, Volvo. He believed regular people have an edge over Wall Street because we encounter great businesses before analysts do. If you love a product or service, investigate the company behind it.

🎯 Focus on Growth at a Reasonable Price (GARP)

Lynch didn't want slow-growing value stocks, nor did he want to overpay for high-flyers. He wanted the sweet spot: companies growing 15-25% per year, trading at reasonable valuations. The PEG ratio is the perfect tool for finding this balance.

🔍 Do Your Homework

The PEG ratio is a starting point, not the finish line. Lynch spent hours researching companies—reading annual reports, visiting stores, talking to management. He wanted to understand the business, not just the numbers. A low PEG ratio means nothing if the company's competitive position is eroding.

⏰ Think Long-Term

Lynch held stocks for years, not months. He understood that great companies take time to compound their value. If you've found a quality business with a PEG ratio under 1.0, be patient. The market will eventually recognize what you've discovered.

💪 Ignore the Noise

Lynch famously said, "The key to making money in stocks is not to get scared out of them." Market volatility is normal. If your analysis is sound and the PEG ratio is attractive, temporary price drops are buying opportunities, not reasons to panic.

Current Stock Price

This is the easy part! Check any financial website—Yahoo Finance, Google Finance, Bloomberg, or your brokerage account. Use the current market price, not the day's high or low.

Pro tip: I like to calculate fair value and then set price alerts. When the stock drops to my target price, I get notified automatically.

Earnings Per Share (EPS)

Use the trailing twelve months (TTM) EPS, which you'll find on any financial website under "Key Statistics" or "Financials." This is the actual earnings over the past year, not forward estimates.

Pro tip: Make sure you're using diluted EPS, not basic EPS. Diluted EPS accounts for stock options and convertible securities, giving you a more conservative number.

Expected Annual Growth Rate

This is the trickiest input. I use a combination of:

• Historical growth: Look at the past 3-5 years of EPS growth
• Analyst estimates: Check consensus estimates on Yahoo Finance or Seeking Alpha
• Industry trends: Consider the company's market and competitive position
• Management guidance: What does the company project for future growth?

Pro tip: When in doubt, be conservative. I usually take the lower end of analyst estimates or use historical growth minus 2-3%. It's better to underestimate and find a bargain than overestimate and overpay.

P/E Ratio (Optional)

The calculator can auto-calculate this by dividing the current price by EPS. But if you want to input it manually, use the trailing P/E ratio, not the forward P/E.

Pro tip: Compare the company's current P/E to its historical average P/E. If it's trading well below its historical average AND has a low PEG ratio, that's a double signal of potential undervaluation.

Q: What's the difference between Peter Lynch's method and DCF?

DCF (Discounted Cash Flow) projects all future cash flows and discounts them to present value—it's comprehensive but complex. Peter Lynch's PEG method is much simpler: it just asks if you're paying a reasonable price for growth. DCF is better for detailed analysis; PEG is better for quick screening. I use both—PEG to find candidates, DCF to validate my top picks.

Q: Can I use this for dividend stocks?

Not really. The PEG ratio is designed for growth stocks. For dividend stocks, you're better off using the Dividend Discount Model (DDM) or looking at dividend yield and payout ratios. Peter Lynch himself focused on growth, not income.

Q: What if the company has no earnings or negative earnings?

Then you can't use the PEG ratio—it requires positive earnings and a positive growth rate. For startups or turnaround situations, you'll need different valuation methods like price-to-sales ratios, comparable company analysis, or venture capital-style valuation approaches.

Q: Is a PEG ratio of 0.5 always better than 0.8?

Not necessarily! A very low PEG ratio might signal that the market knows something you don't—maybe the growth rate is about to collapse, or there's a major risk you're missing. Always ask WHY a stock is cheap. Sometimes it's a bargain; sometimes it's a value trap.

Q: Should I use historical growth or projected growth?

I use projected growth, but I sanity-check it against historical growth. If a company has historically grown at 10% but analysts project 25%, I'm skeptical. Conversely, if historical growth is 20% and projections are 8%, I want to understand what changed. The key is being realistic and conservative.

Q: How often should I recalculate the PEG ratio?

I recalculate quarterly when new earnings are released. The stock price changes daily, but that's just noise. What matters is whether the fundamentals—earnings and growth prospects—have changed. If they haven't, temporary price fluctuations are opportunities, not problems.

Q: Did Peter Lynch only use the PEG ratio?

No! Lynch used the PEG ratio as a screening tool, but he also looked at debt levels, competitive advantages, management quality, industry trends, and dozens of other factors. The PEG ratio tells you if a stock deserves further research—it doesn't tell you to buy. Always do your homework.

Q: What growth rate range is ideal for this method?

Peter Lynch preferred companies growing 15-25% annually. Below 10% is too slow (you're essentially buying a value stock). Above 30% is often unsustainable—very few companies can maintain that pace for years. The sweet spot is steady, predictable growth in the mid-teens to low-twenties.

Q: Can I use this for international stocks?

Absolutely! The PEG ratio works for any stock with positive earnings and growth. Just make sure you're using consistent currency (don't mix USD prices with EUR earnings) and be aware that accounting standards vary by country. I tend to add a small premium to my required PEG ratio for international stocks to account for additional risks.

Q: What if the PEG ratio keeps changing as the stock price moves?

That's normal! The PEG ratio will fluctuate with the stock price. What you're looking for is when the PEG drops below 1.0 due to price declines, not deteriorating fundamentals. If earnings and growth expectations remain solid but the price has fallen, that's your buying opportunity. Set price alerts at your target PEG ratio.