Free Peter Lynch Fair Value Calculator
Use our free online tool to perform a Peter Lynch fair value calculation. Estimate a stock's intrinsic value based on the legendary Peter Lynch investment strategy and formula. Need more information?
Understanding the Peter Lynch Fair Value Formula
What does this calculator do?
This calculator estimates the intrinsic value of a stock by multiplying its earnings by its growth potential. It captures whether the market price represents a bargain or an overvaluation relative to the company's financial power.
The Formula
Fair Value = EPS × (Growth Rate + Dividend Yield)
Peter Lynch, during his tenure at Peter Lynch Fidelity (Magellan Fund), suggested that a fair P/E ratio is equal to a company's growth rate. By adding the dividend yield, we get a total-return oriented valuation.
Calculator Inputs
| Input | Description |
|---|---|
| EPS | The net earnings per share for the last 12 months. |
| Growth Rate | The expected annual percentage growth in earnings. |
| Dividend Yield | The current annual dividend yield (%). |
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Peter Lynch Fair Value FAQ
- The Peter Lynch fair value formula estimates a company's intrinsic value by multiplying its Earnings Per Share (EPS) by its (Growth Rate + Dividend Yield). Specifically, V = EPS × (Growth Rate + Dividend Yield) × 100. It is often summarized using the PEG ratio logic.
- To calculate it, take the current EPS and multiply it by the sum of the expected annual growth rate and the current dividend yield. For example, if EPS is $2, growth is 10%, and yield is 2%, the value is 2 × (10 + 2) = $24 (when adjusted for percentage scale).
- Intrinsic value is the 'true' or 'fair' value of an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors, rather than its current market price.
- Peter Lynch, the legendary Fidelity Magellan manager, believed that a stock's fair P/E ratio should equal its growth rate. Adding the dividend yield provides a more complete picture of the total return an investor might expect from a 'stalwart' or 'fast grower'.
- A stock is often considered one of the best stocks to invest in if its fair value (calculated via his formula) is significantly higher than its current market price, or if its PEG ratio is below 1.0, suggesting the market isn't fully pricing in its growth potential.