How Peter Lynch picked stocks that soared—and how you can in India

Lynch is also the author of the classic investing book One Up on Wall Street. A value investor at heart, he is credited with developing the GARP (Growth at a Reasonable Price) strategy and popularising the term “multibagger.”Here are his six rules for spotting multi-bagger stocks, and how they can be applied in India.Lynch was famous as a growth investor, but he never overpaid for growth. A PE of 40 was often too high for him.

He mostly stuck to stocks with a trailing PE under 25.If the market offered stories to justify high valuations, Lynch demanded evidence. Without it, he wouldn’t buy the stock—no matter how fast the company was growing in the short term.Lesson for Indian investors: Dalal Street is full of high-growth stories, but not all are worth chasing. Always ask: How much am I paying for this growth? What is the stock’s PE?While the trailing PE is a great tool, it’s calculated using the last 12 months earnings.

But investors make money in the future.So a valuation tool than accounts for expected growth is useful.This is where the forward PE comes in. It’s the same thing as the regular PE ratio (stock price divided by the earnings per share) but here the earnings are the expected earnings over the next 12 months.As long as your expectations of earnings growth are reasonable (neither too aggressive nor conservative) the forward PE can be a good guidepost for investors.Lynch himself mostly bought stocks with a forward PE less than 15. This is because he did not want to overpay for expected growth.High debt can kill any growth story.

Lynch understood this well. He knew that every dollar that went to repaying debt was one less dollar that was reported as earnings. Higher the debt, greater is the pressure on the