The P/E ratio of any company that's fairly priced will equal its growth rate ... If the P/E of Coca-Cola is 15, you'd expect the company to be growing at about 15 percent a year, etc. But if the P/E ratio is less than the growth rate, you may have found yourself a bargain. A company, say, with a growth rate of 12 percent a year ... and a P/E ratio of 6 is a very attractive prospect. On the other hand, a company with a growth rate of 6 percent a year and a P/E ratio of 12 is an unattractive prospect and headed for a comedown.
In general, a P/E ratio that's half the growth rate is very positive, and one that's twice the growth rate is very negative.
Lynch's formula is as follows:
Intrinsic Value = EPS * G
EPS = Earnings per Share , G = Long Term EPS Growth Rate