Baker Hughes Co (NASDAQ:BKR) Fits Peter Lynch’s GARP Strategy with Strong Growth and Financial Health

Peter Lynch’s investment strategy centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. His approach relies on fundamental analysis, selecting firms with solid profits, low debt, and steady earnings growth, while steering clear of overpriced or highly indebted businesses. The strategy favors holding investments for the long term, letting compounding benefit the investor. Important measures include a PEG ratio under 1 (showing the stock is fairly priced compared to growth), a debt-to-equity ratio below 0.6, a current ratio over 1 (confirming liquidity), and a return on equity (ROE) above 15% (indicating effective capital use).

Baker Hughes Co (NASDAQ:BKR) stands out as a potential match for Lynch’s criteria, especially for those interested in the energy sector with a mix of growth and value. Here’s how BKR meets the strategy’s main points:

1. Earnings Growth and Valuation

• EPS Growth (5-Year): 23.35% – Falls within Lynch’s ideal range of 15–30%, showing steady growth.
• PEG Ratio (5-Year): 0.73 – Under the key level of 1, implying the stock is priced fairly relative to its growth. Lynch preferred such stocks, as they combine growth with reasonable pricing.
• Forward P/E: 15.77 – Slightly higher than the industry average but below the S&P 500’s 35.78, suggesting a fair valuation given its earnings.

2. Financial Health and Profitability

• Debt/Equity Ratio: 0.34 – Well below Lynch’s maximum of 0.6 (and his preference for under 0.25), showing cautious borrowing.
• Current Ratio: 1.41 – Meets the liquidity standard, though slightly lower than peers.
• ROE: 17.22% – Above the 15% target, proving effective use of shareholder funds.
• ROIC: 11.38% – Better than 82% of industry competitors, highlighting operational strength.

3. Industry Position and Dividend Appeal

BKR works in oilfield services and energy technology, sectors with fluctuating demand but lasting importance as global energy needs shift. The company’s varied segments—Well Construction, Completions, and Subsea Systems—offer stability. Its 2.14% dividend yield, supported by a 10-year payment record and a manageable 28.6% payout ratio, fits Lynch’s preference for shareholder-friendly practices.

Fundamental Summary

Our full fundamental report gives BKR a 5/10, noting strengths in profitability (ROE, margins) and financial health (low debt), balanced by valuation concerns (higher P/E compared to the industry) and mixed liquidity metrics. The stock’s growth path and fair PEG ratio make it a strong GARP option, though its ties to cyclical industries require attention.

Looking for More

For investors searching for other stocks that fit Peter Lynch’s criteria, see the full screen results here.

Disclaimer: This analysis is not investment advice. Do your own research or consult a financial advisor before making investment decisions.