Creating Peter Lynch Charts
In several of Peter Lynch's old books, he shared a charting technique later dubbed the "Peter Lynch Chart".
"A quick way to tell if a stock is overpriced is to compare the price line to the earnings line".
A quick guide to producing these charts in Koyfin ??
1/ These charts are sometimes referred to as "Fair Value" chart lines, where you plot a range of constant valuation multiples to visualise where the company trades in relation to those bands.
Example: Apple trades at 8.9x sales with a 10Y mean of 4.9x sales.
2/ To reproduce this, we use the multiplier transformation in Koyfin, allowing you to multiply or divide the underlying data of a multiple.
Open up the historical graph, add a ticker of the company you wish to study and ensure the historical chart data series is selected. Next decide which multiple you wish to plot. In this example, we will plot forward earnings.
? Add four NTM EPS Consensus Average data series to the chart
? Merge them into the same panel as the share price
? Open the settings of NTM EPS, and multiply them
3/ $AAPL trades at 32.2x forward earnings with a 10Y mean of 20x.
In this case, we plot constant 15x, 20x, 25x, and 30x multiples.
4/ A great way to view this style of chart for hundreds of companies at once is to save this view as a chart template and load it into the Lots of Charts feature.
Here is a longer form YouTube demo we created, if you would like to learn more: