Peter Lynch ran Fidelity's Magellan Fund from 1977 to 1990, averaging 29.2% annual returns — more than double the S&P 500. He didn't do it by finding cigar-butt value stocks the way Graham did, nor by chasing hypergrowth the way a venture capitalist might. He looked for something in between: businesses growing faster than the market expected, available at valuations that hadn't yet priced in that growth.

The P/E ratio of any company that's fairly priced will equal its growth rate.

GARP — Growth at a Reasonable Price — is not a rigid methodology. It's more of a disposition: an insistence that paying up for growth is fine, but only if the premium is justified by the growth rate. A company growing earnings at 30% per year is worth a higher P/E than one growing at 8%. The question is: how much higher?

Lynch's answer was the PEG ratio — a simple tool that normalises P/E by the earnings growth rate. If the P/E roughly equals the growth rate, Lynch considered the stock fairly valued. Below that, it was interesting. Above 2×, it was speculative territory where you were paying heavily for future promises that might not materialise.

Lynch was famously pragmatic. He didn't build elaborate models. He looked for businesses where:

A pure value investor (in the Graham tradition) typically avoids paying above 15× earnings regardless of growth rate. This discipline protects against overpaying, but it also excludes many of the best businesses — the ones compounding at 15–20% per year that never trade below 20× earnings because the market has learned to pay for their consistency.

GARP relaxes this constraint: a company growing earnings at 20% per year and trading at 20× earnings might actually be cheap in relation to its growth. The key is not to relax the constraint so far that any growth story becomes justified.

The framework breaks down in two situations. First, when growth rates are inflated by one-time items, accounting adjustments, or unsustainable margins — the PEG looks attractive but the underlying engine is weaker than it appears. Second, during euphoric markets where the PEG ratios of growth stocks expand far beyond any reasonable range and GARP investors rationalise their way into overvalued positions.

Lynch himself acknowledged this: the PEG ratio is a starting point for analysis, not a substitute for it. A business with a PEG of 0.7 still needs to actually deliver the growth — if that growth deteriorates, the "reasonable price" can quickly become an expensive price.

The Sixtycents screener lets you filter stocks by PEG ratio alongside P/E, P/B, and dividend yield vs historical ranges — so you can find GARP opportunities across any universe.

See stocks ranked by PEG and valuation context

Pure value misses great businesses. Pure growth overpays for them. GARP is the middle path.

What Is GARP? Peter Lynch's Framework for Finding Growth at a Reasonable Price

The PEG ratio is P/E divided by the earnings growth rate. That's it. Yet the simplicity is deceptive — it captures something that the raw P/E completely misses.

PEG = P/E ratio ÷ EPS growth rate (%). A stock with a P/E of 25 and an earnings growth rate of 25% has a PEG of 1.0. Peter Lynch considered PEG = 1.0 to be "fairly valued" — a reasonable price to pay for the growth you're getting. Below 1.0 is potentially cheap. Above 2.0 is expensive relative to growth.

Notice the second row: a company with a P/E of 12× looks cheap in isolation. But if it's growing at only 4%, a GARP investor would see the PEG at 3.0 and consider it quite expensive relative to what the growth delivers.

The growth rate used matters enormously. Trailing PEG uses historical EPS growth — it's what actually happened. Forward PEG uses analysts' earnings estimates — it's what people expect to happen. Lynch generally favoured trailing or near-term estimates, being sceptical of forecasts beyond 3–5 years.

The danger of forward PEG is that analysts systematically overestimate growth, particularly for popular companies with good recent momentum. A stock with an attractive forward PEG might turn out to be expensive when the actual earnings come in below expectations.

PEG in context: the same principle as P/E history

Just as P/E is most useful compared to a stock's own history (not an absolute threshold), PEG is most useful as a relative tool. A technology company might always trade at a PEG of 1.5–2.5 because of its business quality. When its PEG drops to 1.0, that's historically cheap for that specific company — even if 1.0 is "fair" in Lynch's framework.

Each stock page on Sixtycents shows PEG alongside its historical percentile — so you can see not just the raw PEG, but whether it's cheap or expensive relative to where the stock has historically traded.

Track PEG alongside historical valuation context

A P/E ratio without a growth rate is an incomplete picture. Here's how to read both together.

The PEG Ratio: Why Paying 25× Earnings Might Be Cheaper Than Paying 12×

Peter Lynch's framework for finding businesses growing fast enough to justify a higher valuation — using the PEG ratio as the central tool.

GARP

What Is GARP? Peter Lynch's Framework for Finding Growth at a Reasonable Price

The PEG Ratio: Why Paying 25× Earnings Might Be Cheaper Than Paying 12×

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