Peter Lynch Fast Growers — 15–30% Earnings Growth, Low Debt, ROE Above 15%

Peter Lynch classified stocks into six categories in One Up on Wall Street. Fast Growers are companies growing annual earnings at 15–30%. Lynch called them his favorite category because the growth rate is high enough to produce exceptional returns but not so high as to require the heroic assumptions that make very-high-growth investing risky. The 15–30% range represents sustainable quality growth.

Lynch was skeptical of very high claimed growth rates, noting 'trees don't grow to the sky.' Companies growing at 40–50% annually almost never sustain that rate — markets eventually saturate, competitors enter, or the growth reflects non-repeatable conditions. The 30% cap targets the range where growth is genuinely fast but based on real business expansion rather than exceptional circumstances.

Lynch's approach combined fundamental research with business understanding. He looked for companies with PEG ratios below 1, strong earnings growth, clean balance sheets, and business models he could understand and explain in a few sentences. He famously said 'invest in what you know' — businesses whose products or services you encounter as a consumer often provide early insight into competitive strength.

Lynch used PEG (P/E divided by growth rate) rather than absolute P/E. A company growing earnings at 20% with a P/E of 20 has a PEG of 1.0 — fairly valued by his framework. A P/E of 15 with the same growth gives PEG of 0.75 — undervalued. This screen uses P/E < 30 as a practical cap, which at 20% growth implies a PEG of 1.5 — the upper reasonable boundary.

The upper growth cap (30%) excludes hypergrowth stocks Lynch viewed as risky. The P/E cap (30) adds valuation discipline — expensive fast growers often underperform even when growth continues. The ROE requirement (15%) adds quality. The D/E filter adds safety. Together, these filters identify the quality-growth intersection Lynch specifically targeted, not just raw growth.

Lynch found fast growers across many sectors — the key was finding businesses in their expansion phase rather than their mature phase. Consumer brands in new market segments, regional companies going national, specialty retailers, and mid-cap technology companies were frequent sources. He specifically avoided overly complicated businesses and preferred those with strong recurring customer demand.

Lynch meant that consumer and business experiences often provide early signals of competitive strength before the financial statements fully capture it. If you observe a restaurant consistently packed, a retailer with lines at the door, or a software tool being adopted rapidly in your industry — that qualitative observation can precede the financial results. The screen identifies the quantitative filter; Lynch's 'invest in what you know' is the qualitative complement.

Yes, and it's recommended. For each stock on this screen, divide the P/E by the earnings growth rate. Lynch's ideal PEG is below 1.0, indicating undervaluation relative to growth. At 20% earnings growth, a P/E of 15 gives PEG 0.75 — undervalued. A P/E of 25 gives PEG 1.25 — fairly valued. Use this to rank within the screen results.

Both target growth at reasonable price. The Lynch Fast Growers screen specifically bounds the growth rate to 15-30% and requires ROE above 15% and D/E below 1. The Low PEG screen directly calculates the PEG ratio and filters PEG < 1. They're complementary filters — stocks appearing on both have strong combined conviction.

Lynch found his best returns in small and mid-cap companies where earnings growth hadn't yet been widely recognized or priced in. This screen applies to all sizes. Large-cap companies growing earnings at 15-30% consistently are exceptional — and usually command premium valuations. The greatest Lynch-style returns historically came from mid-cap names growing into large-cap status over 5-10 years.