Baker Hughes Co (NASDAQ:BKR) Emerges as a Strong GARP Investment Following Peter Lynch's Strategy

In the world of long-term investing, few strategies have shown as much staying power as the growth-at-a-reasonable-price (GARP) approach made famous by legendary investor Peter Lynch. His method focuses on finding companies with lasting earnings growth, good financial health, and fair prices, qualities that let investors take part in corporate growth without paying too much for the chance. This middle-ground strategy steers clear of the extremes of pure growth investing and deep value methods, instead looking for companies that mix solid basics with good prices.

Meeting the Lynch Criteria

Baker Hughes Co (NASDAQ:BKR) stands as a strong candidate when measured against Lynch's investment framework. The oilfield services provider shows several traits that match the strategy's main ideas:

• Sustainable Earnings Growth: With a five-year EPS growth rate of 23.35%, BKR easily passes Lynch's 15% minimum level while staying under his 30% sustainability limit
• Attractive Valuation: The company's PEG ratio of 0.78 sits well under Lynch's preferred level of 1.0, suggesting the market might be pricing its growth potential too low
• Conservative Financial Structure: A debt-to-equity ratio of 0.34 shows careful financial management, falling below Lynch's preferred maximum of 0.6
• Strong Profitability: A return on equity of 17.22% is much higher than the 15% minimum Lynch wanted for quality companies
• Adequate Liquidity: The current ratio of 1.41 points to enough short-term financial flexibility to handle obligations

These numbers together create a view of a company expanding at a lasting speed while keeping financial control, exactly the mix Lynch looked for in his investments.

Fundamental Assessment Overview

The company's detailed fundamental analysis shows a mixed but mostly good picture. Baker Hughes does especially well on profitability measures, with high returns on equity and invested capital that do better than most industry competitors. The company's profit margins have seen steady gains in recent years, pointing to capable operational management.

However, the analysis also mentions some worries about liquidity ratios and valuation levels. While the current ratio meets minimum needs, it is lower than industry averages. The valuation review shows the stock trades at a higher price than industry competitors on several measures, though this could be reasonable given the company's better profitability and growth traits.

The dividend profile offers another good point, with a manageable payout ratio and a ten-year history of steady payments. This income part adds another reason to like it for long-term investors looking for total return instead of just price gains.

Industry Position and Outlook

As a top provider of oilfield products, services, and digital answers, Baker Hughes works in a sector seeing major change. The company's twin focus on traditional energy services and new energy technology puts it in a place to gain from both current energy needs and the shift to lower-carbon options. This balanced way fits with Lynch's liking for companies that know their main business while adjusting to shifting market situations.

The company's wide experience and technical skills offer competitive benefits that are hard to copy, building the kind of lasting edge that Lynch saw as important. While the energy sector deals with cyclical challenges, Baker Hughes' spread across services and geographies helps reduce these risks.

Investment Considerations

For investors using a GARP strategy, Baker Hughes offers an interesting case of balanced growth investing. The company's solid past growth, joined with fair valuation measures and good financial health, implies it warrants a look for long-term portfolios. However, investors should keep in mind the cyclical character of the energy sector and watch how the company handles the continuing energy shift.

Those wanting to look into more companies that fit Peter Lynch's investment rules can view the full screen results for other possible opportunities.

Disclaimer: This analysis is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.