| Peter Lynch is a big proponent of the belief that a company should be trading at a PE ratio equal to its growth rate. For example, a company growing its earnings at 15% per year should have a PE of 15. Usually, we determine a stock price by multiplying PE x EPS. In Peter's equation, however, he's saying that he's only willing to pay a multiple equal to the company's growth rate. We, therefore, substitute EPS growth into the equation instead of PE: Peter Lynch FV = EPS Growth Rate x EPS. |
