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How Peter Lynch Values a Stock! (Peter Lynch's Valuation Tutorial)
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- Опубликовано: 23 авг 2022
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Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world. In this video, I take you step by step to show you his process of valuing stocks. Let me know if you have any questions below!
Social Media (and other fun stuff): linktr.ee/dividendology
Formula to automatically pull in price to earnings:
=GOOGLEFINANCE(H7,"pe")
I am not a Financial advisor or licensed professional. Nothing I say or produce on RUclips, or anywhere else, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk. Some of the links in the description may be affiliate links.
Your channel is great, adding this method of valuation to your next valuation videos would be really cool!
All the best of luck and thank you for your awsome content!
Thank you so much!
Pretty easy formula to see the results. P/E-Dividend and compare that to expected growth. < Growth undervalued and >Growth overvalued. Never saw his formulation before. Thank you for giving me something else to consider.
Great, you make it easy to follow and easy to understand. Thanks.
Very concise. Thank you for the help
Great video again! thank you so much;
I was running some tests on disney stock but their dividend yiend is N/A on yahoo finance. As a consequence, the excel outputs 0,0055 (which would be terribly overvalued) However, I assume that there is some kind of interpretation when such thing happens ?
Just an FYI for other investors, a lot of places will look at the formula in an inverse way-Price to earnings divided by growth+dividend yield. In such cases, a result of less than 1 may be undervalued and over 1 could be overvalued. You should always make sure you understand what the formula is *telling you* and do you own research.
absolutely.
What is the right formula...inverse or as is?
PEG ratio
Thank you very much for educating us.
Agree wth Peter. It depends on your mode of investing. Ie Long term. Earnings and dividence ratio will determine the growth of a company.
This does seem a bit dated. If you go by Peter Lynch's belief that corporate earnings grow 8% per year, the S&P500 would be valued at (8 + 2) / 20 = 0.5 = Very overvalued.
Peter Lynch has always encouraged people to buy stocks as well, so in a market where everything is (comparatively) overvalued, finding stocks above 2 or 3 would be exceedingly difficult.
Exactly
I came across the video and it's really useful!!
Thank you so much for your explanation❤
Glad it was helpful!
Thank you great work
whats the principle/basis behind the formula? Can this be traced back to fundamental DCF?
". If you spend 13 minutes analyzing economic and market forecasts, you have wasted 10 minutes.”
-Peter Lynch.
Thank you
I'm getting tired of listening to fluff and catchphrases while learning about investment; I need more practical examples. I'm already practicing gratitude and manifesting abundance. Now, how can I practically analyze economic and market forecasts in just 3 minutes?
Thank you so much for sharing!
you're welcome!
Thanks for this
Excellent pratical explaination makes confident, thank
Glad it was helpful!
Hi! Thank you for this video, is easy to follow and super interesting :)
Could you please advice if these formulas work in excel too? I tried to calculate DCF in excel and it gets crazy once free cash flow is negative (example: 2020 -147$, 2021: 1010$, growth for 2021: -785%) is there a walkaround for this or should i just give up and use google sheet instead xd?
This is great!
When you looked at the dividend yield for AT&T, it says "forward" dividend and yield.
What does "forward" stand for? Does it mean it is the expectation for the future dividend yield?
And also the "future" earnings per share growth..
Why is it that every factor that must be taken into account is about the future? Isn't it dangerous to make projections about the future?
Isn't the past decade performance of the company a more reliable (but not perfect) indicator of how it may perform?
Excellent channel - wanted to make a excel template using Peter Lynch Formula
thank you 🤝
Glad you made this video. Hope lots of "investors" follow it. Lunatics!
Can I ask where you found this calculation from Lynch? I read much about and written by him and I did not find this
PEGY= 1
P/E = G + DY
Math Derivation leads to:
P = √[(50*growth ratio*eps)^2 + 100*eps*DPS] + 50*growth ratio*eps
What do I do if the growth is - number?
VOW 4,26. Toyota 2,06. Honda 3,01. There are plenty. But that is only one side of the coin. It shows investors expectations rather than valuation. I would say if close to 1 - hype. 2 - might be good deal. 3 something might be wrong. 4 probably trash with lots of debt.
How about 8.2? SBUX is at moment on this table above? What that means?
Also known as the PEGY ratio which was a twist on the PEG ratio. (Price Earnings Growth ratio or Price Earnings Growth + Yield ratio)
Correct!
Price earnings growth means Net income growth or EPS or something else? I'm really confused about this price earnings growth
@@Mykhailo-uc3zc in the context of this ratio it is describing relationship between market pe ratio / (estimated future eps growth rate + dividend yield). If market p/e is 15 and analysts expect eps to grow at 12% + dividend yield is 3% the PEGY is 1 (15/(12+3)). PEG would be 15/12 or 1.25 (pe is 125% of expected eps growth rate)
@Михаил I just realize that I've switched numerators & denominators vs how Dividendology shows it in their video. Same idea. Hope that didn't over complicate it.
@@spinchange Yes, thanks, your example made this formula more clear. But Lynch rates companies in six categories using annual earnings growth. For example, a fast-growing company should ideally grow by 20-25% per year, stalwarts about 10% per year. Does he also use Eps growth in this context? But in this case, not the future Eps, but the percentage increase of Eps between 2021 and 2022, for example
Hi what's google finance formula for dividend yield and eps growth ? so I can look up without looking up each time
Google finance doesn’t provide that data unfortunately.
Expectations of future growth does a lot of heavy lifting in this model
In what situations can you use this method? Because it's clear that it can't be applied for tech stock which normaly have very high P/E so they would always be overvalued..? Is the method outdated or some conditions applies? Thanks,
Compare to the sector average or median.
An the tech sector hast a Higher growth rate, so it can compansate the High Valuation. You get Problems with this Formula If you have negativ earnigs or If the earnings a volatil.
How to automate?
The P/E ratio of the formula on ticker symbol T which is 6.68 is not the same as when you click over to yahoo finance which is 8.87? can you please explain this? which one is correct and why?
He did this vid a year ago, doubt the PE is the same anymore
i think this works well for old fashion companies like chemicals or event HSY. But for Software given the high P/Es all will look overvalued
it d b better if u could hve shown p e ratio without the formula, for those not familiar w excel
Great video . However what if growth is negative and dividend is small or zero , then the result will be negative figure . How to interpret the negative result. Please clarify
Don't buy
I’m wondering, after watching you show how the P/E Ratio can be pulled from Yahoo by using the Google Sheets Formula . . . If the Dividend Yield and the Future EPS Growth can ALSO be pulled by using Formulas?
I have a few videos on webscraping, so the answer is yes! You can pull those in. I sometimes intentionally don’t automatically web scrape some elements. That was users can make projections based on different assumptions. (Ex: projecting different growth rates)
I try to web scrape the input data from Yahoo/Analisys, but my formula on Google sheet don’t work. Can you make a specific video? (Scraping data from Yahoo / ANALISYS) Thank you!!!
Excellent! Excellent! Excellent video! Thank you. Question, what or chapter does Peter Lynch illustrates this? Thank you
Chapter 13.
But he said in the book you want a pe of 15 or more that means EPS would need to be at least 22.5 with no dividends. That doesn’t add up?
to download the formula spreadsheet do we have to subscribe for whole 12 months ? could we not pay one off ?
you can just subscribe for a month!
Understand one thing, if making money was easy every buddy around you should have become millionaires by now.
Is there a way to automatically get the future EPS growth and Dividend Yield the same way that you did with the P/E ratio?
I’m working on creating a solution for this.
@@Dividendology well keep me posted
=importhtml function on google sheets
May I ask how would this formula work when there is no dividend ? will it not give incorrect result ? like Tesla for example
just dont include any dividends in the formula!
The formula includes the dividend yield because other things being equal a higher dividend yield means a lower EPS growth
What if Future growth of EPS is not given? Eg. Coal India Ltd
I assume if there is no dividend, the calculation would be the same without the div yield?
Correct.
i cant find anything above 0.6 wtf
Might point you to a bunch of value traps
(eps growth + dy)/pe = (eps growth*eps + dy*eps)/p
In other words. If the atual price is lower than how much you receive from dividends + expected price growth, it's a great deal.
What do i do if it says N/A on dividend yield?
@robsweatherchannel
0 seconds ago
Try the other method - shows price to book ratio (p/b) Share price (current) /divide BVPS (book value per share)
example
VZ - $41.2 / 22.4 = 1.89
why are there s9 amny ways to value a stock?
whats the logic behind this formula ?
none 😂
what if the company doesnt have a dividend yield (no dividend) ?
Then use 0 for the yield
Great content… but couldn’t find the excel sheet 😕
it's on Tickerdata.com !
I tried Cost, TSLA and BAC they were all at 1 or lower. Can someone give me a stock where it’s at 3 or higher. Please don’t say KMART, KODAC or RADIO SHACK.
VOW 4.26 still wouldnt buy..
what if there is no dividend yield?
Try the other method - shows price to book ratio (p/b) Share price (current) /divide BVPS (book value per share)
example
VZ - $41.2 / 22.4 = 1.89
Wait, but, what if the company has no dividend yield?
Just add 0!
You should do a video on the ticker EXPD.
I'll have to add it to my list of videos to make.
@@Dividendology Can you do a video on Free Cash Flow (‘FCF’) Based Pricing Approach in Google Sheets?
How come you are not using % for EPS Growth and Dividend yield?
Basically in your formula future EPS growth of 3.35 means 335% and Dividend yield of 5.79 means 579%?
When you automatically load the pe ratio in you sheet fot AT&T, it said: 6,68. But when you went to the yahoo finance page it said that the pe ratio is 8,02. Why the difference?
It’s most likely trailing twelve month PE vs forward looking PE
@@Dividendology where can I find the forward looking pe on yahoo finance? because I don't have Google sheets.
@@grumpyvegan6439 you probably found it by now but if not - its under Statistics on Yahoo Finance.
I do not get why i shold add the Dividend, because it is part of the Earnings. So if a company has an earning growth of 10% and pays 0% dividend it is a worse company compared to a company with 10% earning growth and 5% Dividend?!
You are Right.
Just forget about the dividend.
No matter what you do stocks are controlled by big banks. Why. And how? I’d there is any turmoil in any parts of the world (eg. Ukraine, Israel, Iran, Saudi Arabia etc) prices will go down without any strategy or steps taken. The only way you could be little safe is to buy stocks that pay dividends. My stocks cost me 225k dollars 2 years ago now they are valued at 150K $. Good Luck
That looks like the inverse of the peg ratio.
So if a company has no dividend do you just put a zero for dividend yield?
Yes!
Is sorry. I'm confused how YOU EVER figure the true intrinsic value of any stock. When you're using so many different calculation models that generate so may different results. It doesn't make sense. Please help me figure out how you're coming to a true buy price for anything? Thanks and I love your videos!
Great question. Each valuation model is obviously different. They value a company different ways, whether it be based off EPS, free cash flow, dividends, and using comparables.
The problem is that no valuation model accounts for every aspect of the business. For example DCF is a great model, but doesn't take into account how the market is valuing similar companies. And the Dividend discount model is great, but doesn't take into account current market conditions like Grahams valuation.
So while Im a fan of each of these valuation models, no valuation model is perfect, which is why I use multiple to account for every aspect of the business and market conditions.
Using multiple valuation methods also allows me to reduce the risk of errors in calculations. For example, if my growth rate projection for the dividend discount model is off, that would eba. big problem if it was the only valuation model I used. But because I use multiple valuations, the significance of that error is slightly reduced.
Also important to apply a margin of safety!
Hope that helps some!
What do you do if the stock does not have a P/E ratio
Or has a negative P/E
with this formula, MSFT seems like quite overvalued. then why it has been in the top 10 corporations list in the us stock markets for more than 20 years? i am not an expert so maybe I don't understand sufficiently. as a result I am not convinced with the main idea of the formula and this video.
Addition directly is wrong.
It didn't calculate intrinsic value
Bro, you can multiply the value of this valuation*price of the company (and that should be the price of that stock). After that you can add a % of security and that it
I did this for RL and getting $350 is that what your saying? As peter valuation is saying 3.6 for this
@@petera4640 exactly bro. But thats one value model. You have to use more models to estimate fair price for your stock. Imo is a good buy opportunity according to Graham, DCF and Lynch formula. According to my stock analyser it should be around $182 but obviously is up to you.
So, i do this formula, let's say i got 2.57 for NEWT. x $17.58 from actual price, that its $45.13 of estimated value (less the margin of safty, ofc) It's this correct?
@@josemelache8237 yes but remember that the future growth and eps will change with the earnings of the company so you should do it after earnings of that company
@@rvarm21 yep, keep the track, also see other metrics of the stock. whas just to clarify add to the formula. tnks!
For an honest review, after some tests, i guarantee you cant apply this formula in real life? How do you make up this? Is it wrong? Compared to Peg
How can I use to to trade OPTIONS 😂
No one talking about the market being down 3% on yahoo finance in thr beginning?
my stock got 14.98
scale of 1-10....about a 2
😂😂😂😂😂😂
Formula doesn't work for most of the indian stocks. It shows all are undervalued 😂
there is no valuation above 1 ever!
you should talk faster
to complicated
If it was easy everyone would do it.
Forget the formulas forget the ratios. Buy low, sell high. That’s it. There’s no magic trick.
@@DucksNuts. just look the SP relative to its 52 wk H/L
No. It’s the price
Lol imagine thinking you know what "low" is without assessing valuation. 😂
@@BlakeC341 I do know what low is. Again, just compare the price to 52 wk low/high. Here are a few examples. Earlier this year I made money buying bank stocks. ALLY, COF. Ally I bought around $23 a pop, COF somewhere around high 80s. During the “banking crisis” I just wanted to make a few bucks. And sold ALLY around 28ish whilst selling covered calls. COF I sold in the 110s. No Ratios. No crappy excel sheets. Just simply bought low and sold high. There really is no magic trick. Same thing with Amazon. Bought in high 80s. Sold around 120 ish. Again. No ratios no super big valuation formula crap trying to be Mr genius. Just buying low selling high
Really? I mean he made 300 million dollars certainly using this method. Warren bought companies using intrinsic value formula. Like Benjamin graham. You are pretty stupid if you think “ none of these work”
If its less than 1 it should be Undervalued and close to 3 should be Very Over Valued.
Thank you so much for sharing!
You are so welcome!
Wait, but, what if the company has no dividend yield?