Value Investing - Peter Lynch's Formula

 Peter Lynch's Formula  Peter Lynch 's astounding record makes him the greatest mutual fund manager in history. In his book One Up on Wall Street, Lynch gives a simple, straight-forward explanation as to how he does a quick and dirty valuation of a firm's growth versus its stock price. Here's just a short quote explaining how he does it.

The P/E ratio of any company that's fairly priced will equal its growth rate ... If the P/E of Coca-Cola is 15, you'd expect the company to be growing at about 15 percent a year, etc. But if the P/E ratio is less than the growth rate, you may have found yourself a bargain. A company, say, with a growth rate of 12 percent a year ... and a P/E ratio of 6 is a very attractive prospect. On the other hand, a company with a growth rate of 6 percent a year and a P/E ratio of 12 is an unattractive prospect and headed for a comedown.

In general, a P/E ratio that's half the growth rate is very positive, and one that's twice the growth rate is very negative.

Lynch's formula is as follows:

Intrinsic Value = EPS * G

EPS = Earnings per Share , G = Long Term EPS Growth Rate 

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Audiobook: One Up On Wall Street by Peter Lynch

One up on Wall Street by Peter Lynch pdf

The New York Times best seller "one up on wall street by Peter Lynch" has more than one million copies sold through out the world. Peter Lynch, the world's greatest and the most successful fund manager, was undoubtedly the best stock picker of his time. Anise C. Wallace of The New York Times says "Mr. Lynch investment record puts him in a league by himself ".

Any investor should pay heed to what Mr. Lynch has to say and this book is full of advises by Mr. Lynch himself. He has shared loads of his own personal experiences of stock picking during his tenure at Fidelity Magellan Fund, which is truly a priceless treasure for any equity investor.

Use the following link to download this fabulous book in pdf format: One up on Wall Street by Peter Lynch