Classic investor frameworks · Relative valuation
Peter Lynch · PEG
Compares P/E with sustainable earnings growth to impose simple price discipline on profitable growth companies.
- Guide level
- Practical
- Output
- Relative valuation
Core formula
PEG = P/E ÷ expected earnings growth rateHow to interpret it
Compares P/E with sustainable earnings growth to impose simple price discipline on profitable growth companies.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
PEG ignores capital intensity, balance-sheet risk and growth durability, and fails with negative earnings.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.