Peter Lynch Fair Value Calculator

Formula

Worked Example

Hypothetical company: EPS = Rs. 28.5, EBITDA growth = 20%, PEG = 0.55. Implied current P/E = 0.55 × 20 = 11, so the implied price is Rs. 313.50. Fair P/E = 20, Fair Value = 28.5 × 20 = Rs. 570.00. Because PEG is below 1, the model reads the stock as undervalued.

How to Interpret the Result

Peter Lynch believed a stock is fairly valued when its P/E equals its growth rate (PEG = 1). A PEG below 1 suggests undervaluation; above 1 suggests overvaluation. It suits companies with sustained earnings growth. For mature, high-payout companies, the Dividend Discount Model is usually a better fit.

Common Mistakes

1) Using EPS growth instead of EBITDA/operating cash flow growth. 2) Using one-year growth instead of the 3-5 year average. 3) Applying the model to cyclical or commodity companies where growth is not sustainable. 4) Ignoring debt levels — high-growth companies with heavy debt are riskier.