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 (%). |
Find Undervalued Stocks Faster
Combine the Peter Lynch fair value calculation with our Stock Screener to identify high-quality stocks automatically.
The Lynch Philosophy: Why "Growth at a Reasonable Price" Wins
Peter Lynch, the legendary manager of the Fidelity Magellan Fund, famously said, "If you can't describe it to a ten-year-old in two minutes or less, you shouldn't own it." His fair value formula is the embodiment of this simplicity—focusing on the relationship between a company's earnings power and its growth rate.
The Power of PEG
Lynch's strategy is built on the PEG ratio (Price/Earnings to Growth). He believed that a company's fair P/E ratio should be equal to its growth rate. If a company grows at 20% per year, it is fairly valued at a P/E of 20.
Dividend Inclusion
Unlike many growth investors, Lynch valued dividends. He added the dividend yield to the growth rate to recognize that cash returned to shareholders is just as valuable as earnings reinvested for growth.
Core Tenets of Lynch Investing
Invest in What You Know
Lynch believed that everyday consumers often find "tenbaggers" (stocks that go up 10x) simply by noticing great products in their daily lives before Wall Street does.
Earnings are Everything
Over the long term, stock prices always follow earnings. This fair value calculator helps you see if those earnings are being priced reasonably by the market.
Avoiding the "Whisper" Stocks
Lynch avoided stocks that had a lot of hype but no actual profits. He preferred companies with strong balance sheets and "boring" names that were overlooked.
The Lynch Verdict
Using the Peter Lynch fair value calculation, a result significantly higher than the current stock price suggests a "Strong Buy" potential, while a result much lower suggests the stock is speculative or overbought.
Ideal For
- Growth stocks with measurable earnings.
- Companies with consistent dividend policies.
- Retail-facing businesses (restaurants, tech, retail).
- Quickly identifying "GARP" (Growth At A Reasonable Price) opportunities.
Lynch's Advice
"The person who turns over the most rocks wins the game." Use this tool to quickly "turn over the rocks" of different companies to find the hidden gems underneath.
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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.