Peter Lynch's valuation model offers traders and investors a straightforward method to evaluate stocks. Learn how the formula works and use our built-in tool to calculate your own valuations.
Peter Lynch Valuation: A Smart Formula for Traders
Peter Lynch, one of the most respected investors in history, developed a valuation method that’s both simple and incredibly effective for traders and investors alike. The formula combines a company’s expected earnings growth and dividend yield, and compares this to its price-to-earnings (P/E) ratio to determine how attractively a stock is priced.
Understanding the Formula
(Future EPS Growth + Dividend Yield) / P/E Ratio
This formula provides a quick snapshot of whether a stock is:
- Overvalued: If the result is less than 1
- Fairly Valued: If the result is between 1 and 1.5
- Undervalued: If the result is more than 2
Benefits for Traders
- Quick Assessment: Get a rough valuation in seconds, perfect for comparing multiple stocks.
- Simple Inputs: Only requires three key numbers: growth rate, dividend yield, and P/E ratio.
- Effective Screening Tool: Helps filter out overhyped stocks and identify hidden gems.
- Enhances Strategy: Complements both technical and fundamental analysis methods.
Try It Yourself!
Use the form below to calculate the valuation score for any stock using Peter Lynch's formula:
Have you used this valuation method before? Share your results, insights, or questions in the comments. Let’s learn and grow together!
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