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Lynch-Style PEG Analysis
By Maksym Lytvynov · Rules as of (v23)
Peter Lynch's six stock categories from One Up on Wall Street, each valued the way Lynch valued it — P/E against growth for growers, survival for turnarounds, assets for asset plays, and no P/E test for cyclicals.
Score output: Strong / Attractive / Neutral / Reject / Insufficient data, with a 0–10 score
What is the Lynch Score?
The Lynch score first puts every stock into one of the six categories of One Up on Wall Street (1989) — slow grower, stalwart, fast grower, cyclical, turnaround or asset play — and then values it the way Lynch valued that category. For growers the test is the dividend-adjusted PEG (PEGY): the price-to-earnings ratio divided by earnings growth plus dividend yield. Cyclicals get no P/E-to-growth score at all, because a low P/E at the top of a cycle is the trap Lynch warned about. It is one of three models on the Value axis.
How does the Lynch Score work?
Categories are checked in this order: cyclical — GICS sector materials or energy, or a sub-industry naming steel, automobile, automotive parts, tires, airline, chemical, semiconductor, aluminum, paper, metals & mining; or net income falling to 50% or less of an earlier peak inside the 5-year window while revenue falls too; turnaround — a loss in the latest fiscal year or any of the 3 before it; asset play — price below net assets per share (net current asset value or tangible book); slow grower — 5-year EPS growth below 5%; stalwart — growth from 5% to below 20%; fast grower — growth 20% or more.
Each stock is first put in one of Lynch's six categories (checked in the order listed), then valued the way its category is: PEGY for slow growers, stalwarts and fast growers, cash against debt for turnarounds, the discount to net assets for asset plays, and no score for cyclicals. Growth is the 5-year EPS CAGR ending at the latest fiscal year; a base-year EPS below 0.1 or below 10% of the latest is a tiny base and gives no growth rate.
For growers: P/E (trailing twelve months, earnings from continuing operations) ÷ (5-year EPS growth % + dividend yield %) < 1; score 10 at PEGY ≤ 0.5, 8 at ≤ 0.67, 6 at ≤ 1, 3 at ≤ 2, else 0. PEGY is plain PEG for a company that pays no dividend. For a payer it credits the dividend: at a P/E of 15, 10% growth and a 4% yield, PEG is 1.50 but PEGY is 1.07.
Balance sheet checks apply to every category: debt ÷ equity ≤ 25/75 (0.33); at 80/20 (4) or above, or with negative equity, the balance sheet is weak and caps the status at Neutral; (cash − debt) ÷ shares > 0; and inventory growth ≤ sales growth in the latest fiscal year.
What does Lynch look for in a stock?
Each criterion as the scoring code evaluates it, with the threshold it uses and where that threshold comes from.
P/E ÷ (EPS growth % + dividend yield %)
- Passes when
- P/E (trailing twelve months, earnings from continuing operations) ÷ (5-year EPS growth % + dividend yield %) < 1; score 10 at PEGY ≤ 0.5, 8 at ≤ 0.67, 6 at ≤ 1, 3 at ≤ 2, else 0
- Applies to
- slow grower, stalwart, fast grower
- Source
- One Up on Wall Street, ch. 13 (P/E equal to the growth rate is fair; (growth + yield) ÷ P/E of 2 is what to look for, 1.5 okay, below 1 poor)
Earnings are growing
- Passes when
- 5-year EPS growth > 0; shrinking earnings score 0
- Applies to
- slow grower, stalwart, fast grower
- Source
- One Up on Wall Street, ch. 13
Cash covers debt
- Passes when
- cash ≥ debt scores 8, cash ≥ half of debt 4, less 0
- Applies to
- turnaround
- Source
- One Up on Wall Street, ch. 7 and 13 (can it survive its creditors)
Price below net asset value per share
- Passes when
- price < net assets per share (larger of net current asset value and tangible book per share); score 10 at ≤ 66.7% of it, else 6
- Applies to
- asset play
- Source
- One Up on Wall Street, ch. 7 (asset plays); the 2/3 line is Graham's net-net margin
Cyclical: valued on the cycle, not on P/E-to-growth
- Passes when
- no P/E-to-growth test: a low P/E at the top of the cycle is the trap
- Applies to
- cyclical
- Source
- One Up on Wall Street, ch. 7 and 13
Debt-to-equity no more than 25/75
- Passes when
- debt ÷ equity ≤ 25/75 (0.33); at 80/20 (4) or above, or with negative equity, the balance sheet is weak and caps the status at Neutral
- Applies to
- Every category
- Source
- One Up on Wall Street, ch. 13 (75% equity / 25% debt is normal)
Net cash per share is positive
- Passes when
- (cash − debt) ÷ shares > 0
- Applies to
- Every category
- Source
- One Up on Wall Street, ch. 13
Inventory not growing faster than sales
- Passes when
- inventory growth ≤ sales growth in the latest fiscal year
- Applies to
- Every category
- Source
- One Up on Wall Street, ch. 13 (inventories growing faster than sales is a red flag)
- Plain PEG (P/E ÷ growth %) is reported next to the score but not scored: PEGY already is PEG for a company that pays no dividend.
How the Lynch score maps to a status
| Status | Rule |
|---|---|
| Strong | 10 category score |
| Attractive | 6–9 category score |
| Neutral | 3–5 category score |
| Reject | 0–2 category score |
| Neutral | cyclical: judged, but not on PEG |
| Insufficient data | no category score and not a cyclical |
A weak balance sheet caps Strong or Attractive at Neutral (ch. 13).
Which companies Lynch rates
| Sector profile | Rated | Note |
|---|---|---|
| General | Yes | — |
| Bank | Not applicable | Lynch's categories and PEG do not apply to banks and insurers |
| Insurer | Not applicable | Lynch's categories and PEG do not apply to banks and insurers |
| Asset manager | Yes | — |
| Holding company | Yes | — |
| Utility | Yes | — |
| REIT | Yes | — |
“Not applicable” means the model is left out of that company's axis — never scored as zero or as neutral.
How AlphaStocks uses Lynch
Inside the Value axis the weights are Graham Defensive-Investor Criteria 45%, Lynch Categories and PEG 25%, Greenblatt Magic Formula 30% (general profile; the sector profiles shift them — see the methodology page). Only the models that apply to a company and have a score are averaged, re-weighted among themselves; a model that does not apply is left out, never counted as zero. The Value axis carries 10% of the composite. The Value axis also sets Timing (15%), which is the lower of Value and Momentum.
Lynch does not rate banks, insurers: their earnings and balance sheets do not fit his categories or PEG.
Value = weighted mean of the applicable Value models (Lynch 25%); composite weight of Value: 10%; Timing = min(Value, Momentum): 15%Current top stocks by Lynch
The Lynch-Style PEG Analysis model is evaluated for every stock in our coverage it applies to. You can filter the full rankings table to see which stocks currently score highest on this model and compare them across all five investment frameworks.
Frequently Asked Questions
What is the PEG ratio and how does AlphaStocks calculate it?
PEG is the P/E ratio divided by the annual earnings growth rate. AlphaStocks scores the dividend-adjusted version, PEGY: P/E (trailing twelve months, earnings from continuing operations) ÷ (5-year EPS growth % + dividend yield %) < 1; score 10 at PEGY ≤ 0.5, 8 at ≤ 0.67, 6 at ≤ 1, 3 at ≤ 2, else 0. The P/E uses trailing-twelve-month earnings.
What are Peter Lynch's six stock categories?
Slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays. AlphaStocks assigns them by rule: cyclical: GICS sector materials or energy, or a sub-industry naming steel, automobile, automotive parts, tires, airline, chemical, semiconductor, aluminum, paper, metals & mining; or net income falling to 50% or less of an earlier peak inside the 5-year window while revenue falls too; turnaround: a loss in the latest fiscal year or any of the 3 before it; asset play: price below net assets per share (net current asset value or tangible book); slow grower: 5-year EPS growth below 5%; stalwart: growth from 5% to below 20%; fast grower: growth 20% or more.
Why does AlphaStocks adjust PEG for dividends?
Lynch did: for dividend payers he added the yield to the growth rate. Without it, a mature company returning cash through dividends looks more expensive than it is.
Why do cyclical stocks get no Lynch score?
A cyclical looks cheapest on P/E at the peak of its earnings, just before they fall. Lynch warned against exactly that, so the model classifies the stock as cyclical, shows why, and gives it a Neutral status without a P/E-to-growth score.
What PEG ratio is considered good value?
Lynch's own words, as the model encodes them: P/E (trailing twelve months, earnings from continuing operations) ÷ (5-year EPS growth % + dividend yield %) < 1; score 10 at PEGY ≤ 0.5, 8 at ≤ 0.67, 6 at ≤ 1, 3 at ≤ 2, else 0.
See all 1,500+ stocks scored
Every stock evaluated by Lynch-Style PEG Analysis and four other investment models, from SEC filings. Changed in v23? See what changed and why.
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Model names reference the published investment methodologies of their respective authors. AlphaStocks is not affiliated with, endorsed by, or sponsored by Peter Lynch or any related entities. Our implementation follows the cited sources; where it adapts them, the adaptation is named above.
AlphaStocks provides investment research and analysis, not investment advice. Past performance does not guarantee future results. Always do your own due diligence before making investment decisions. Data sourced from SEC EDGAR and Alpaca Markets.