Peter LynchPeter Lynch
Peter Lynch Fair Value (PEG / PEGY & Net Cash) Calculator
Based on legendary Fidelity Magellan manager Peter Lynch’s rule that fair P/E equals annual earnings growth rate (PEG = 1.0), adjusted for dividend yield and net cash per share.
Calculator Inputs
Income Statement > Diluted EPS
Balance Sheet (Cash & Equivalents - Total Debt) / Shares
Theoretical Foundation & Equation
Peter Lynch argued that a stock growing at 15% per year deserves a P/E of 15. Factoring in dividend yield creates the PEGY multiple. Adding balance sheet net cash per share provides a complete, grounded intrinsic valuation.
Core Intrinsic Formula
Fair Value = EPS × (Expected Growth Rate(%) + Dividend Yield(%)) + Net Cash Per Share
Variable Definitions & Disclosure Guidance
| Symbol | Variable Name | Description | Filing Source Guide |
|---|---|---|---|
| EPS | Earnings Per Share | Normalized TTM Diluted EPS | 10-K / 10-Q Income Statement |
| g | Expected Annual Growth Rate | Expected 3-5 year annual EPS growth rate (Lynch capped at 25%) | Historical earnings trend and conservative forward estimates |
| Dividend Yield | Dividend Yield | Annual dividend divided by stock price (%) | Cash dividend yield |
| Net Cash | Net Cash Per Share | (Cash & Equivalents - Total Debt) / Shares (deduct if net debt) | Balance sheet cash minus total debt |
Financial Intuition: Growth drives operating valuation multiple, and excess balance sheet cash gives equity holders immediate liquid asset backing.
Step-by-Step Worked Example
Clean balance sheet mid-cap compounder.
Sample Financial Filing Inputs
EPS
$3.00
TTM Normalized
Expected Growth Rate
15.0%
3-Year Forward CAGR
Dividend Yield
2.0%
Current Payout
Net Cash Per Share
$5.00
Balance Sheet Net Cash / Shares
Calculation Steps
Step 1: Calculate PEGY Multiple17.0x P/E
Growth (15.0) + Yield (2.0) = 17.0x Fair Multiple
Step 2: Calculate Operating Equity Value$51.00
$3.00 × 17.0x = $51.00
Step 3: Add Net Cash Per Share$56.00 Fair Value
$51.00 + $5.00 = $56.00
Example Conclusion & Interpretation
Peter Lynch fair value is $56.00 per share ($51.00 operating + $5.00 net cash).
Suitability Checklist & Limitations
Best Suited For
- •Growth companies and compounders growing earnings at 10-25% annually with clean balance sheets
- •Profitable mid-cap and large-cap leaders
Not Suitable For
- •Unprofitable firms, deeply cyclical companies with volatile swings, or declining legacy businesses
Frequently Asked Questions
Even stellar companies encounter competitive limits. Sustaining >25% earnings growth over 5-10 years is exceedingly rare, making higher multiples dangerous.
Primary Citations & Source Documentation
Peter Lynch (1989)
One Up On Wall Street: How to Use What You Already Know to Make Money in the Market (1989)
View Source / Filing ReferenceLegal Caveat
- Always verify that reported net cash is not trapped in foreign subsidiaries or earmarked for immediate debt maturities.