ACI Worldwide Inc. (NASDAQ:ACIW): A Peter Lynch GARP Strategy Candidate

For investors looking for a disciplined, long-term way to build wealth, few strategies have the substance of Peter Lynch's method. The famous manager of the Fidelity Magellan Fund supported a "growth at a reasonable price" (GARP) idea, concentrating on companies with durable, steady growth, good financial condition, and prices that do not overvalue future potential. His strategy, outlined in One Up on Wall Street, stresses fundamental study and a long-term view, avoiding attempts to predict market movements to focus on knowing a business. A main instrument for using this idea is a stock screener that sorts for particular measures Lynch considered important: solid but not extreme profit growth, high earnings ability, acceptable debt, and a good price when growth is considered.

One company that recently appeared from such a filter is ACI Worldwide Inc (NASDAQ:ACIW). The Nebraska-based company is a global supplier of real-time electronic payment software and systems, working with banks, merchants, and billers. For investors who follow Lynch's rules, ACIW offers an interesting example of a business working in the necessary, if sometimes less noticed, financial systems area, precisely the kind of "ordinary" but clear field Lynch usually liked.

Matching the Lynch Measures

A Peter Lynch filter usually looks for companies that show a particular mix of growth, price, and financial soundness. ACI Worldwide seems to match these central needs closely:

• Steady Profit Growth: Lynch wanted companies increasing earnings per share (EPS) between 15% and 30% each year, quick enough to be positive but not so unstable as to be unreliable. ACIW's five-year average EPS growth of 27.5% fits well within this goal, showing a good historical pattern of rising earnings.
• Good Price via PEG Ratio: Maybe the main part of Lynch's price method is the Price/Earnings to Growth (PEG) ratio. A number at or under 1.0 implies the market may not be completely valuing the company's growth path. With a PEG ratio of 0.72, ACIW sells at a point that rewards investors for its past growth, a good sign for price-aware GARP investors.
• High Earnings Ability (ROE): Return on Equity (ROE) checks how well a company creates earnings from shareholder funds. Lynch liked companies with an ROE above 15%. ACIW's ROE of 17.64% not only meets this level but also places well within its software industry group, showing capable management and a profitable way of operating.
• Good Financial Condition: To limit high risk, Lynch highlighted financial steadiness.
  • Debt/Equity Ratio: ACIW's Debt/Equity ratio of 0.56 is under the filter's limit of 0.6, meaning the company is supported more by equity than debt, which matches a careful balance sheet method.
  • Current Ratio: The company's Current Ratio of 1.58 indicates it has enough short-term resources to meet its near-term obligations, offering a buffer for daily needs.

A View of Fundamental Soundness

Beyond the specific filter measures, a wider look at ACI Worldwide's fundamental picture supports its position as a Lynch-method candidate. According to a full fundamental study, the company receives a total score of 6 out of 10, with clear positives in earnings ability (score of 8) and price (score of 7).

• Earnings Ability Positive: The company does well in main earnings measures. Its Return on Invested Capital (ROIC) of 12.16% and Operating Margin of 20.83% are some of the top in its field. Also, both its profit and operating margins have shown good gains in recent years.
• Sensible Price Setting: While its basic P/E ratio may seem high, the price view gets better when seen with context. Compared to both the wider S&P 500 and its own software industry, which often sells at much higher multiples, ACIW seems relatively low-priced. This is further backed by good ratios for Enterprise Value/EBITDA and Price/Free Cash Flow.
• Points to Watch: The study notes some small questions about financial condition (score of 5), mainly linked to a rise in debt use compared to the year before. Growth is scored as a middle 5, with very strong past EPS growth predicted to slow to a still-good level later, and sales growth staying consistent but limited.

Is ACIW a Lynch-Method Possibility?

For investors who follow Peter Lynch's idea, ACI Worldwide meets several important points. It works in the necessary payments network, a field with lasting demand sources. Its historical growth in profits is strong and has been reached profitably, as shown by its high ROE and margins. Importantly, when its growth rate is included in the price through the PEG ratio, the stock seems fairly valued, a central rule of the GARP method.

The company's picture, a profitable participant in a needed specialty with a sensible price, fits the Lynch example of a possibly unseen or undervalued chance worth more study. As Lynch suggested, a filter gives a beginning list, not a list to purchase. The following move requires more detailed study into the company's competitive strengths, market directions in electronic payments, and the durability of its growth sources.

Interested in looking at other companies that pass a Peter Lynch-inspired filter? You can locate and adjust the filter for your own study here.

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Disclaimer: This article is for information and learning only. It is not meant as investment guidance, a suggestion, or an offer to purchase or sell any security. The study is based on data and a particular investment strategy structure; investors should do their own complete research and think about their personal financial situation and risk comfort before making any investment choices.