A P/E of 25 can be cheap, if earnings grow 30%. The PEG ratio makes growth stocks comparable, automated across the entire market.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
MSCI World over the same period: +240.1 %
Past performance is not a reliable indicator of future results.
| Score | Number of stocks |
|---|---|
| -3 | 1,472 |
| -2 | 2,791 |
| -1 | 5,651 |
| 0 | 1,767 |
| +1 | 944 |
| +2 | 863 |
| +3 | 1,218 |
| +4 | 1,297 |
| +5 | 262 |
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. That gives three classes: high, medium, low match.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
The PEGY ratio (P/E / (growth + dividend yield)) grades from +3 (below 0.5) to −2 (above 2.0).
A debt-to-equity ratio below 0.33 (one third) ensures the growth is not financed on credit.
If inventories grow slower than sales, demand is pulling: the early indicator earns a point.
Inventory growing much faster than sales announces discount battles and costs a point.
These exact rules run over every stock daily.
After a free sign-up: the full profile in the rule editor to copy, adjust thresholds and save as your own starting profile.
See & copy all rulesThe backtest shows a total return of +392.4%. The MSCI World reaches +240.1% over the same period.
Survivorship-free since June 30, 2015: the index composition is applied point-in-time.
Historical period, quarterly rebalancing, no taxes or fees. Past performance is not a reliable indicator of future results.
Purely mechanical rule application, no curated-list effect: stocks with a high match can fall just like any other stock.
For growth-oriented investors with valuation discipline: if you want growth but refuse to pay any price, the PEGY is the right yardstick, understandable, comparable and applicable across industries. Lynch favours smaller growth names ("small companies have big moves"); StockScorer reflects that with a priority for small caps.
The PEG strategy follows the principle Peter Lynch established as manager of the Magellan Fund: the price-earnings ratio alone means nothing until you set it against earnings growth. Lynch himself uses the PEGY for that: P/E divided by growth PLUS dividend yield, because for him a dividend is part of the total return. A PEGY of 1.0 counts as fair; below that, undervaluation begins, while Lynch himself already grades a PEG from 1.0 as "poor", with no extra bonus points. Growth above 50% per year counts as unsustainable in Lynch's view and is excluded. The core is flanked by two further Lynch-typical checks: a conservative balance sheet (debt-to-equity below a third) and the often overlooked inventory early-warning indicator. When inventories pile up faster than sales grow, discount campaigns and margin slumps are coming, long before they show up in the income statement.
A knockout gate first excludes growth above 50% per year: Lynch considers such high growth unsustainable. The PEGY ratio (P/E divided by expected earnings growth PLUS dividend yield) is then translated into tiers: below 0.5 counts as extreme undervaluation (+3), 0.5 to 1.0 as the ideal GARP window (+2). From 2.0 (or when no meaningful PEGY exists because earnings or growth are negative) the score is −2: the growth is then priced too expensively, or the thesis does not hold. The 1.0 to 2.0 window deliberately earns no points, since Lynch himself already grades a PEG from 1.0 as "poor".
Two quality checks complete the picture: a debt-to-equity ratio below 0.33 (a third, Lynch's own threshold) adds +1. If inventories grow slower than sales, that earns +1; if they grow more than 10 percentage points faster, it costs a point. For financials, balance-sheet and inventory rules do not apply and stay neutral. The upper threshold is a uniform 4 points across all size classes, with priority given to small caps.
Growth gate (knockout): earnings growth up to 50% p.a., above that it counts as unsustainable.
PEGY 0–0.5: extreme undervaluation relative to growth (+3). PEGY 0.5–1.0: ideal window (+2). PEGY above 2, negative or missing: overpriced (−2). PEGY 1.0–2.0: fair, no bonus point.
Debt-to-equity below 0.33: conservative balance sheet (+1, neutral for financials).
Inventories: growth below sales growth (+1); more than 10 percentage points above it (−1), the shelf-warmer early indicator (neutral for financials).
The strength of the PEGY: it makes growth stocks comparable across industries and valuation levels, and the dividend yield in the denominator captures total return the way Lynch understood it. The weakness: it depends on the quality of the growth estimate. For cyclicals at an earnings peak the PEGY looks deceptively low, because the high growth is not sustainable. The sister strategy Balanced GARP addresses exactly this case by deliberately not rewarding extremely low PEGs.
Fidelity update as of 23 August 2026: the criterion now uses PEGY instead of the plain PEG (Lynch's own definition including dividend yield), the growth gate above 50% is new, the debt-to-equity threshold now sits at one third instead of 0.4, and the 1.0 to 1.5 window no longer earns a bonus, since Lynch himself already calls anything from 1.0 "poor". "Inventory growing much faster" remains concretised as more than 10 percentage points above sales growth. Companies without inventories (software, services) as well as financials stay neutral on both inventory rules and the balance-sheet rule. In the backtest the PEGY comes from the data provider's historical annual ratios.
For investors who want to filter growth companies systematically by their price-to-growth ratio: as a core strategy or as a valuation check over a growth watchlist.