Baker Hughes Co (NASDAQ:BKR) Stands Out as a Peter Lynch-Style GARP Investment

The investment philosophy created by Peter Lynch focuses on finding companies with good growth potential that are available at fair prices, a method frequently labeled as Growth at a Reasonable Price (GARP). This method steers clear of the far ends of pure growth or deep value investing, concentrating instead on businesses showing steady growth, good financial condition, and earnings, all while being valued attractively compared to their growth path. The system uses a particular group of fundamental filters to search for these companies, emphasizing long-term possibility above short-term market changes.

Meeting the Lynch Criteria

Baker Hughes Co (NASDAQ:BKR) appears from a screen constructed on Peter Lynch's main ideas. The company's financial measurements match well with the strategy's needs for steady growth, fair valuation, and financial soundness.

• Sustainable Earnings Growth: A fundamental part of Lynch's strategy is earnings growth that is solid but not extreme, making sure it can be continued. Baker Hughes shows an Earnings Per Share (EPS) growth rate of about 23.35% over the last five years. This number fits well inside the Lynch screen's desired range of 15% to 30%, pointing to a healthy and possibly maintainable growth rate that sidesteps the warning sign of excessive growth.
• Reasonable Valuation via PEG Ratio: Lynch was well known for preferring the PEG ratio (Price/Earnings to Growth) to find stocks that are not overvalued compared to their growth. Baker Hughes has a PEG ratio of 0.83, which is under the important level of 1. This suggests the market might be pricing the company's stock too low considering its past earnings growth, a main indicator for GARP investors.
• Strong Profitability (ROE): The screen requires a Return on Equity (ROE) above 15% to confirm the company is effectively producing earnings from shareholder money. Baker Hughes greatly surpasses this with an ROE of 17.22%, showing a high degree of profitability and efficient management use of equity.
• Solid Financial Health: The Lynch method needs a company to be financially stable to endure economic slowdowns.
  • The company's Debt-to-Equity ratio of 0.34 is significantly under the screen's maximum of 0.6, showing a careful approach to debt and a reduced chance of financial trouble.
  • Its Current Ratio of 1.41 satisfies the need to be at least 1, verifying that the company has enough short-term assets to pay its short-term debts.

Fundamental Analysis Overview

A thorough fundamental analysis report for Baker Hughes gives it an overall score of 6 out of 10. The analysis shows a company with clear strong points together with some points for attention. Its most attractive characteristic is its very good profitability, with high scores for Return on Assets, Return on Invested Capital, and profit margins that are better than a large portion of its competitors in the Energy Equipment & Services industry. The company also holds a good dividend score, backed by a consistent payment history and a maintainable payout ratio.

Regarding valuation, the report indicates Baker Hughes is trading at prices that are a bit high compared to its own cash flow and future earnings projections when measured against industry competitors. Still, this is partly balanced by its strong profitability. The company's financial condition shows a varied image; it displays good solvency with an acceptable amount of debt but indicates some small worries about its liquidity measurements. Growth analysis points to solid past performance in earnings, although predictions for future growth have become more conservative.

A Candidate for Long-Term Portfolios

For investors following the Peter Lynch philosophy, Baker Hughes offers a strong case. It successfully meets the numerical filters made to locate companies with lasting growth, fair prices, and sound financial bases. Its high profitability and effective use of capital are important advantages. While its valuation and closer-term growth prospects need thought, its fit with the central GARP principles—confirmed by its good PEG ratio and earnings growth record—makes it a stock deserving of more study for a long-term, varied portfolio.

For investors looking to perform their own research, the Peter Lynch strategy screen used to find companies like Baker Hughes is ready for more investigation. You can locate more qualifying companies and change the criteria to your own requirements by going to the Peter Lynch Stock Screener.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investments involve risk, including the possible loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.