Improving the Peter Lynch Fair Value Calculation
In looking at the Peter Lynch Fair Value calculation, I believe you are over inflating fair value by including the full projected EPS growth rate without filtering. Peter Lynch, if the projected growth was over 25, would always use 25 which served as a buffer for creating fair values against growth rates which may not be sustainable while still providing for well above average continued growth. For example today YF Premium shows a Fair Value of about $100 for KL, where calculating it out per Peter's true method comes in at about $58.
umair malik commented
Value Analyzer does limit the growth rate estimates so as to not overinflate valuation, but we set the maximum growth to 40% (not 25%).
The reason we did that was to allow better analysis of very fast growing tech stocks which can maintain very high EPS growth rates for some time. (think Google, Apple, Facebook, etc. which for many years had growth rates well above 25%--only recently slowing down)
There is a trade off made when selecting the maximum estimated growth rate. If it's set too low, it can overvalue some rapidly growing companies in their early part of the growth phase--which can last for some time. When these companies become larger, the growth inevitably slows down and the lower number is more realistic.
Our algorithm is adaptive, and looks for slowdowns in the EPS growth rate, and assigns lower estimates as quickly as possible in these cases. It attempts to be conservative in general.
So while Value Analyzer does use the Peter Lynch approach in general (PEG), it does allow this flexibility in the analysis to handle very rapid growth scenarios.
Hope that helps.