3 cheapest stocks in India according to Peter Lynch’s favourite formula. Should you buy? – Stock Insights News

By Ekta Sonecha Desai

At just 46, Peter Lynch did what most investors wouldn’t dare—he retired at the peak of his success. His track record was nothing short of extraordinary, delivering market-beating returns for over a decade. But his real legacy lies in how he picked winning stocks, helping everyday investors find undervalued opportunities in places others overlooked.

Lynch believed that one of the best ways to analyze a stock was by comparing its Price-to-Earnings (P/E) ratio to its growth rate. This gave rise to the PEG ratio (Price/Earnings to Growth), a crucial tool in stock selection. 

Here’s the formula: PEG Ratio = (Price/Earnings Ratio) ÷ Annual EPS Growth Rate

While a low P/E ratio can make a stock look cheap, it doesn’t tell the full story. A company growing at a rapid pace may justify a higher valuation, while a slow-growing company may be overvalued even at a low P/E. That’s why Lynch used the PEG ratio—to find stocks that were not just cheap but had strong future potential.

In today’s volatile markets, relying on low PEG ratio stocks can provide resilience. Stock prices swing wildly, but companies with a healthy balance of valuation and growth tend to hold their ground. However, the challenge lies in selecting the right ones—not every low PEG stock is a great investment. Some may be undervalued for a reason, weighed down by weak financials or uncertain futures. The real trick is identifying companies that are not only cheap but also have bright prospects and solid fundamentals.

That’s why in this article, we haven’t just picked stocks with a low PEG ratio. We’ve gone a step further, selecting three stocks that offer a rare combination of attractive valuations and strong growth fundamentals. These are companies with the potential to outperform the market while keeping downside risks in check—helping investors make more informed, confident, and strategic investment decisions.

Shilchar Technologies is engaged in the business of manufacturing distribution transformers for the electronics, telecom, and power sector. The company has recently ventured into the manufacturing of ferrite transformers. 

Its currently trading at a PEG ratio of 0.7 times. It is trading at a P/E ratio of 42 times. 

Shilchar Technologies’ low valuation raises an important question—is the stock truly undervalued, or is the market overlooking its growth potential? A deeper dive into its financial performance may reveal the answer.

Shilchar Technologies has delivered exceptional financial performance over the past five years, driven by strategic capacity utilisation, operational efficiency, and a strong demand environment.

Revenue from operations grew from Rs 71 crore in FY20 to Rs 397 crore in FY24, registering a CAGR of 41.1%. The increase in revenue was fueled by higher demand from the renewable energy sector, an optimal product mix. In FY24 the company achieved 100% capacity utilisation. The company’s export markets also expanded, contributing significantly to overall sales.

Operating profit surged from Rs 3 crore in FY20 to Rs 113 crore in FY24, reflecting a CAGR of 106.6%. This was primarily due to higher production volumes, operating leverage from capacity utilisation, and cost optimisation measures. 

Net profit increased significantly from Rs 2 crore in FY20 to Rs 92 crore in FY24, marking a CAGR of 115.1%. The company’s profit after tax grew by 113% year-on-year in FY24, supported by strong revenue growth, a better product mix, and improved operational efficiencies. A debt-free balance sheet and significant cash reserves further strengthened the financial position.

Earnings per share saw an impressive rise from Rs 2 in FY20 to Rs 120.5 in FY24, reflecting higher profitability and effective capital management. This increase aligns with the company’s rising earnings and consistent reinvestment in business expansion.

Shilchar Technologies’ Financial Performance Summary (2020-24)

Particulars	FY20	FY21	FY22	FY23	FY24
Sales (Rs in crore)	71	118	180	280	397
Operating Profit (Rs in crore)	3	10	19	53	113
Net Profit (Rs in crore)	2	6	14	43	92
EPS (Rs)	2.0	7.3	18.5	56.7	120.5

Source: Screener.in

Coal India is mainly engaged in mining and production of coal and also operates coal washeries. The major consumers of the company are power and steel sectors. Consumers from other sectors include cement, fertilizers, brick kilns etc.

The company’s shares are currently trading at a peg ratio of 0.4 times and at a P/E ratio of 6.8 times.

Analyzing financial performance is necessary to understand whether Coal India’s current valuation accurately represents its true worth or if the market is overlooking its long-term potential. Let’s take a deeper look . 

Coal India reported consistent growth over the last five years, driven by increased coal production, improved operational efficiencies, and favorable market conditions.

Revenue grew from Rs 96,080 crore in FY20 to Rs 1,42,324 crore in FY24, reflecting a 8.2% CAGR. The revenue growth was primarily due to higher coal offtake and price adjustments. Despite a decline in e-auction prices, overall revenue grew in FY24 due to an 8% rise in coal offtake and an increase in average fuel supply agreement (FSA) price per tonne.

Operating profit surged from Rs 21,581 crore in FY20 to Rs 47,971 crore in FY24. In FY24, the operating margin expanded to 30% from 28% in the previous year. This was mainly due to lower material costs and reduced employee benefit expenses.

Net profit rose from Rs 16,700 crore in FY20 to Rs 37,369 crore in FY24, achieving a 17.5% CAGR. The surge in net profit was driven by record coal production, improved efficiencies, and changes in accounting for stripping activities.

Earnings per share followed a similar trajectory, increasing from Rs 27.1 in FY20 to Rs 60.7 in FY24. This reflects strong profitability and improved return metrics.

Coal India’s Financial Performance Summary (2020-24)

Particulars	FY20	FY21	FY22	FY23
Sales (Rs in crore)	96,080	90,026	1,09,715	1,38,252
Operating Profit (Rs in crore)	21,581	18,628	24,721	44,233
Net Profit (Rs in crore)	16,700	12,702	17,378	31,723
EPS (Rs)	27.1	20.6	28.2	51.5

Source: Screener.in

Incorporated in 1991, Ganesh Housing Corporation is in the business of real estate development in residential and commercial segment and infrastructure projects.

It is currently trading at peg ratio of 0.3 time while it is trading at a P/E ratio of 22.6 times. 

Let’s take a deeper look at Ganesh Housing Corporation’s historical financial performance to understand whether the stock is overlooked by the market or there is a fundamental reason for its current valuations

Ganesh Housing Corporation has shown a significant financial turnaround over the past five years. The company recovered from losses and delivered strong growth across all key financial metrics.

Revenue increased from Rs 267 crore in FY20 to Rs 891 crore in FY24, registering a CAGR of 27.3%. This sharp rise was driven by higher demand for residential and commercial properties, increased project launches, and improved realization per unit. The real estate market recovery and rising property prices further contributed to this growth.

Operating profit improved significantly from a loss of Rs 53 crore in FY20 to a profit of Rs 624 crore in FY24. This shift was due to cost optimization measures, operational efficiency, and the completion of higher-margin projects. The company focused on reducing debt, improving cash flows, and optimizing land monetization strategies.

Net profit grew from a loss of Rs 120 crore in FY20 to a profit of Rs 461 crore in FY24. The sharp rise was supported by higher revenue, increased operating efficiency, and financial restructuring. The company also benefited from strategic land monetization and favorable market trends in real estate sales.

Earnings per share jumped from a negative Rs 24.3 in FY20 to Rs 55.3 in FY24, showcasing the company’s financial recovery and improved shareholder returns. This growth was driven by higher net profits and better capital allocation strategies.

Ganesh Housing’s remarkable turnaround was fueled by rising demand in the real estate sector, efficient cost management, and strategic asset utilization. The company has successfully positioned itself for continued growth by leveraging strong market conditions and focusing on high-value projects.

Ganesh Housing Corporation’s Financial Performance Summary (2020-24)

Particulars	FY20	FY21	FY22	FY23	FY24
Sales (Rs in crore)	267	168	383	616	891
Operating Profit (Rs in crore)	-53	-48	134	252	624
Net Profit (Rs in crore)	-120	-105	71	102	461
EPS (Rs)	-24.3	-21.4	8.5	12.3	55.3

Source: Screener.in

Conclusion 

Charlie Munger once said, ‘A great business at a fair price is superior to a fair business at a great price.’ This wisdom is crucial when evaluating stocks based on their PEG ratio. A low PEG may indicate undervaluation, but it does not automatically make a stock a good investment.

 A stock can be cheap for a reason. It may face structural industry challenges, weak management, or unsustainable growth. Relying solely on valuation metrics without assessing business fundamentals can lead to costly mistakes.

Market conditions also play a key role. Economic downturns, regulatory changes, and industry shifts can impact the future prospects of even fundamentally strong companies. A company that looks undervalued today may struggle to grow if external conditions turn unfavorable.

Investors should combine PEG ratio analysis with a broader assessment of financial health, competitive positioning, and future earnings visibility. A well-researched investment, rather than a blindly followed ratio, is what leads to sustainable wealth creation. The best opportunities lie in stocks that are not just undervalued but also have the resilience to grow in changing market environments.

Disclaimer

Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. 

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. 

Ekta Sonecha Desai has a passion for writing and a deep interest in the equity markets. Combined with an analytical approach, she likes to deep deep into the world of companies, studying their performance, and uncovering insights that bring value to her readers.

Disclosure: The writer and his dependents  do not hold the  stocks discussed in this article. 

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