Peter Lynch Fair Value Formula & Calculator
Apply Peter Lynch's fair value formula in seconds: fair P/E ≈ earnings growth (+ dividend) - free, with formula and example.
Also available in German: Peter-Lynch-Formel Fair-Value Rechner →
Inputs
Earnings per share (EPS)
Also called: EPS, net income per share
Where to find it: Bottom of the income statement, or the key-stats box on finance portals.
How to derive: Net income ÷ shares outstanding.
Growth rate
Also called: Growth per year
Where to find it: Analyst estimates or the company’s historical earnings/revenue growth.
How to derive: (value now ÷ value n years ago)^(1/n) − 1. Estimate conservatively!
Dividend per share
Also called: DPS, payout per share
Where to find it: Investor-relations page or the dividend history on finance portals (trailing 12 months).
How to derive: Total dividends paid ÷ shares outstanding.
Share price
Also called: Stock price, market price
Where to find it: Any finance site (Google/Yahoo Finance) — the current trading price per share.
How to derive: Set by the market; just enter the current price per share.
Result, live
Lynch ratio = (growth + dividend yield) ÷ P/E. Above 1.5 = attractive, below 1 = expensive. Built for growers.
Peter Lynch, the legendary fund manager, had a rule of thumb for growth stocks: a fair P/E roughly equals the annual earnings-growth rate. This calculator applies exactly that rule in seconds - enter earnings, growth and dividend, and instantly see whether a stock looks cheap or expensive.
How the formula works
Lynch compared the P/E ratio to earnings growth. His "fair P/E" is simply the growth rate - a stock growing 15% a year deserves a P/E of about 15. A dividend adds a bonus on top:
Fair value per share = earnings per share × fair P/E
Example: A stock earns $4 per share, grows 15% a year and pays a 1.5% dividend. Fair P/E = 15 + 1.5 = 16.5. Fair value = $4 × 16.5 = $66. Trading at $70, it looks slightly expensive.
How to read the result
The key number is the Lynch ratio = (growth + dividend) ÷ actual P/E. At a glance:
- Above 1.5 - attractively valued; you pay little for the growth.
- 1.0 to 1.5 - fairly valued.
- Below 1.0 - expensive; you pay more than the growth justifies.
Lynch himself looked for a ratio well above 1 - preferably in solid, understandable businesses.
What to watch out for
The formula is deliberately simple - use it as a quick check, not the last word:
- Growth is an estimate. No company compounds double digits forever - the higher the assumed rate, the more caution is warranted.
- Only for profitable growth stocks. It breaks down for loss-makers, cyclicals or banks.
- One model is rarely enough. Lynch's formula is one lens - a robust fair value blends several models.