Adapting Peter Lynch’s Company Types for A-Share Stock Selection

Summary

This report adapts Peter Lynch’s six company categories to China’s A-share market: slow-growing, stable-growing, fast-growing, cyclical, turnaround, and asset-rich companies. Its selection framework first screens for a positive price-to-earnings ratio and a Lynch growth factor, described as an adjusted inverse PEG measure, above 0.5. It then applies category-specific filters, including relative valuation for stable growers, growth limits for fast growers, inventory and revenue growth conditions for cyclical firms, and positive revenue growth for turnaround candidates.

The report also describes a portfolio allocation focused on four categories, assigning 40% to fast growers and 20% each to stable growers, cyclical firms, and turnarounds, with caps on the number of holdings and ranking rules. Backtests cover 2006 through 2017 and report high cumulative and annualized returns, alongside annualized volatility and maximum drawdown. These are historical results only; the summary does not provide enough detail to assess transaction costs, survivorship bias, or out-of-sample performance.

Key ideas

• The framework classifies A-share firms into six company types based on adapted Peter Lynch categories.
• A growth-factor screen is combined with category-specific valuation, revenue, profit, and inventory conditions.
• The portfolio allocates most weight across fast-growing, stable-growing, cyclical, and turnaround companies.
• The report presents historical backtests from 2006 through 2017, including returns, volatility, Sharpe ratio, and drawdown.
• The provided summary does not establish whether results survive trading costs or out-of-sample testing.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.