Peter Lynch Fair Value: Definition, Formula, and How to Calculate It
Definition, formula and background on Peter Lynch and how the Peter Lynch Fair Value is calculated (EPS * Expected Growth). A simple valuation method for identifying reasonably priced growth stocks.
Exact formula used
In the code: EPS_Growth is a capped growth rate; EPS_TTM is trailing twelve months EPS. Both values must be present and positive.
Notes
- Not suitable for negative-earnings companies.
- Simple but often overestimates companies with volatile growth.
- 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.
Why it matters
Peter Lynch believed that the fair P/E ratio of a company is equal to its earnings growth rate. This simple approach has made him one of the most successful investors in modern history. The method is useful for identifying growth stocks at reasonable prices by comparing expected growth rates to valuations.