A simple online calculator for calculating fair value of stocks using Peter Lynch’s formula. With earnings per share and expected growth rate of the company as inputs, this calculator will give you the fair value of the stock under consideration. Compare it with the current market price of the stock and you will be able to decide whether the stock is undervalued or overvalued.
Peter Lynch was one of the most successful mutual fund managers of all time. He had a unique valuation method for stocks with emphasis on growth stocks and PEG ratio (always less than 1) which led to an average annual return of almost 30% from 1977 to 1990 in his flagship Magellan Fund at Fidelity.
Lynch is the author of several stock market books and is credited with making investments simple for the masses by rethinking the way stocks are valued. His rule of thumb as mentioned in his books became the basis for this calculator.
Original Peter Lynch rule of thumb to calculate intrinsic value of a stock:
Peter Lynch Fair Value = Earnings per Share * Earnings Growth
If a company grows its profits by 10% a year, its fair value is ten times its profit. Peter Lynch was also a proponent of Price Earnings Growth (PEG) ratio. Companies with PEG < 1 were considered undervalued and those > 1 were considered overvalued. Companies with PEG = 1 were considered fairly valued.
In our calculator we have set a limit of 8-25% for profit growth. Any growth lower than 8% is automatically considered at 8% and those higher than 25% is capped at 25% respectively for purposes fo calculations.
The Peter Lynch Thumb Rule of Fair value is an approximate measure of intrinsic value or fair value of a share. It is intended to be simple to understand and easy to calculate for the average investor. In order to define fair value precisely, we have developed an online calculator that takes into consideration 7 influential variables leading to additional information about the true value of a share.
Our premium membership automates everything for you so that you can access the fundamental figures easily and immediately. Premium membership to the Fairvalue-Calculator also entitles you to several helpful tools that will aid you on your journey to success in the stock market.
The Fairvalue Calculator is aimed at beginners who are not yet very familiar with fundamental stock analysis as well as our more experienced investors and professionals who do not have the time to calculate all the fundamental numbers manually. In order to make the journey smoother for our amateur investors, we have created lessons in the tutorial area that will serve as a handhold while you get a hang of how to invest. They are quick bites so will not consume much of your time and of course they are free of charge.
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