Peter Lynch ran Fidelity Magellan from 1977 to 1990 and compounded the fund at 29% annually - one of the best documented investing track records of any active manager in history. His framework, GARP (growth at a reasonable price), is still the most-cited active-investing approach for combining growth and value disciplines.
This post explains the GARP framework, walks through how invest-like applies it to today's universe, and shows where Lynch's 1989 thresholds need adjustment for 2026 market structure.
The framework
GARP combines three filters:
Filter 1: PEG ≤ 1.0
The signature Lynch metric. PEG = P/E divided by EPS growth rate (in % points).
- PEG < 1.0 → potentially undervalued (growth not priced in)
- PEG between 1.0 and 1.5 → fair price
- PEG > 1.5 → overpaying for growth
Lynch's published threshold was strict: 1.0 was the buy line. In modern markets, the PEG threshold is often relaxed to 1.5 for high-quality compounders, with the rationale being that quality justifies a premium.
Filter 2: EPS growth ≥ 15%
The growth requirement. Lynch wanted businesses growing earnings at least 15%/year on a 3-5 year horizon. Below 15% growth, the GARP math doesn't favor the position (you'd do better in dividend-paying stable businesses); above 15%, the compounding kicks in.
Filter 3: Debt-to-equity ≤ 0.5
The balance-sheet discipline. Lynch was explicit that leverage destroyed too many otherwise-attractive growth stories in the late 1970s and early 1980s. He wanted businesses that could survive a 2-year revenue stall.
Lynch's stock categories
Lynch famously broke down stocks into 6 categories:
- Slow growers - large mature companies growing < 5%/year (e.g., utilities)
- Stalwarts - solid 10-12% growers (e.g., Coca-Cola, P&G)
- Fast growers - 20-25%+ growers (where Lynch's actual portfolio lived)
- Cyclicals - earnings move with the macro cycle (Lynch generally avoided)
- Turnarounds - broken businesses being fixed (Lynch took specific bets)
- Asset plays - companies whose underlying assets are worth more than market cap
The GARP framework primarily targets categories 2 and 3 (stalwarts and fast growers). Asset plays and turnarounds get separate criteria.
How invest-like applies the Lynch framework
We compute the Lynch scorer on every stock in our quality universe. The current implementation:
- PEG ≤ 1.0: Strong Fit
- PEG between 1.0 and 1.5: Partial Fit (modern relaxation for high-quality compounders)
- PEG > 1.5: Weak Fit
- EPS growth ≥ 15% trailing 3y: required for Strong Fit
- Debt-to-equity ≤ 0.5: required for Strong Fit
- Recognisable consumer business (Lynch's "buy what you know" principle): bonus signal, not a hard filter
Open /strategies/lynch/ to see the current Lynch Strong-Fit universe (roughly 80 stocks pass at any given quarter).
Updated 2026 thresholds
Three places where Lynch's 1989 thresholds need 2026 adjustment:
Adjustment 1: Software companies
Lynch's PEG calculation assumed P/E was the right valuation metric. For software companies with R&D-heavy income statements and stock-based compensation, P/E understates real earnings power. We compute Lynch's framework using adjusted operating EPS (adding back amortisation of intangibles, recognising stock-based comp) for software companies. This brings the PEG into a more meaningful range.
Adjustment 2: AI capex businesses
Lynch's framework wasn't designed for businesses making $50B/year of AI capex investments. NVIDIA's PEG looks "reasonable" on trailing EPS growth (180%+) but the AI capex cycle creates a different risk profile than the consumer-products growth Lynch knew. The framework flags NVDA as Partial Fit rather than Strong Fit, reflecting the cyclical risk.
Adjustment 3: International / large-cap quality
Lynch's framework underweighted established large-cap quality businesses. In 2026 we add the Munger overlay (sustained ROIC ≥ 18%) to the Lynch scorer so it doesn't reject names like Visa or Mastercard just because their growth has matured from 25% to 12%.
Current Lynch top picks (May 2026)
Top 5 stocks that currently pass Lynch's framework with strong fit:
- Visa (V) - 12% EPS growth, PEG ~1.4, balance sheet clean
- Microsoft (MSFT) - 18% EPS growth, PEG ~1.5, debt manageable
- Mastercard (MA) - similar to V profile
- Adobe (ADBE) - 14% EPS growth, PEG ~1.4, balance sheet clean
- ASML (ASML) - 20%+ EPS growth, PEG ~1.0, but cyclical exposure
Lynch in 1989 would have loved the payment-network names; he'd have been skeptical of the AI-capex semiconductor names but probably owned ASML.
Why the Lynch framework still matters in 2026
Three reasons:
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It corrects for the "moat illusion". A stock can have a wonderful moat (passes Buffett) but a deteriorating growth rate. Lynch's framework catches that - if growth has decelerated below 15%, the position downgrades from Strong Fit. Buffett's framework would still pass it; Lynch is the early-warning.
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It rewards growth-quality combinations. A 25% grower at a P/E of 30 (PEG 1.2) is more attractive in Lynch's framework than a 5% grower at P/E of 10 (PEG 2.0). The growth rate is half the math.
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It's the cleanest test for active managers. If you can't articulate why a stock is a Lynch Strong Fit, you probably don't have a real thesis. The discipline is the value.
Where invest-like surfaces Lynch's verdict
Every stock page on invest-like shows the Lynch framework verdict alongside the other six. To see Lynch-specific picks across the universe:
For the deeper read on combining Lynch with other frameworks, see our seven-investor-frameworks explainer.
Disclosure
Educational tool. Lynch's framework is documented in One Up on Wall Street (Lynch, 1989) and Beating the Street (Lynch, 1993). Our implementation modifies the original (PEG ceiling adjustment, software-company adjusted EPS, capex risk overlay) - these are documented changes. Past Lynch-framework verdicts do not predict future returns.
Author: Zaid Ghazal, founder of invest-like, indie SaaS, Kiel, Germany.