What it is
Peter Lynch, in One Up on Wall Street, popularised a simple chart: plot the share price against a line at 15 times earnings per share. When the price runs above the line, the share is expensive relative to its profit; when below, cheap.
It is the same idea as a P/E of 15 turned into a rupee price. Punji calls it the Lynch line.
It is a quick reference, not a valuation. A bank growing fast may deserve more than 15 times; one with rising bad loans may deserve less.
How it is calculated
Lynch line = EPS × 15. Punji's position = (Price − Lynch line) ÷ Lynch line, as a percent.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's FY 2082/83 EPS of Rs 28.36 × 15 gives a Lynch line of about Rs 425.40. At Rs 534.90, the price sits 26% from it.
NABIL's share capital includes Rs 500.00 crore of preference shares, so per-share figures here use its 27,05,69,970 ordinary shares, as the filing does.
What good looks like
Below the line means a P/E under 15. Lynch's own advice was to compare the P/E with the growth rate (the PEG ratio) rather than stop at 15.
Watch out
- Uses the latest EPS, possibly annualised from a part year.
- The 15 multiple is a US-market habit, not a Nepal figure; sector medians in Nepal may sit above or below it.
- Ignores capital, NPL and dividends.
In Nepal
A Punji / textbook tool. No NRB or SEBON basis. Punji shows it alongside the Graham number, PEG and the dividend model on the stock's Valuation card.
Questions
Lynch used 15 as a middle-of-the-road earnings multiple for the US market. It is a convention, not a law.
Yes. It is a P/E of 15 expressed as a rupee price, so you can see the gap to the market price.