Peter Lynch’s Strategy and PEG Ratio Picks

The legendary manager of Fidelity’s Magellan fund (1977 to 1990) and author of One Up on Wall Street subscribed to the investment philosophy of buying into companies you could understand and then analyzing their fundamentals. One of Lynch’s go-to metrics was the PEG ratio (an indicator of value), which measured the relationship between a stock’s price-earnings ratio and its earnings-per-share growth. In a recent article for TheStreet, Validea CEO John Reese explained his Lynch-based stock screening model and identified some picks that make the grade: Waddell & Reed Financial (WDR) is a mutual fund and asset-management company that earns high […]

Reese: Looking at Lynch’s Famous “P/E/G” Ratio

John Reese, CEO and founder of Validea.com and Validea Capital, looks at the Peter Lynch “P/E/G”  ratio in this Globe & Mail Expert Podium column. The P/E/G was one of Lynch’s favorite valuation measures and it is calculated by dividing a stock’s P/E ratio by its growth rate. “The P/E/G tells you how much you’re paying to get a piece of a company’s growth, and Lynch found it to be a great way to identify growth stocks still selling at a good price, ” writes Reese.