CARGURUS INC (NASDAQ:CARG) Identified as a Top GARP Stock Using Peter Lynch's Strategy

The investment philosophy created by Peter Lynch has long been a foundation for investors looking for growing companies at good prices. His method, described in his book One Up on Wall Street, stresses finding businesses with lasting earnings growth, good financial condition, and appealing prices, steering clear of the dangers of over-promoted, very fast-growing stocks. This method, often called Growth at a Reasonable Price (GARP), concentrates on basic strength instead of market timing. A recent filter using Lynch's measures has found Cargurus Inc (NASDAQ:CARG) as a company that matches these ideas closely.

Matching Lynch's Main Measures

The Peter Lynch filter uses particular rules to find companies with a balanced mix of growth, earnings, and price. Cargurus Inc shows a good match across these important points:

• Lasting Earnings Growth: Lynch liked companies with solid, but not extreme, earnings growth to promise staying power. Cargurus states a 5-year EPS growth rate of 26.69%, which fits well within the filter's goal of 15% to 30%. This points to a good and steady growth path that avoids the warning sign of unmaintainable fast growth.
• Good Price Using PEG Ratio: A main idea of Lynch's method is the Price/Earnings to Growth (PEG) ratio, which tries to find stocks that could be priced low compared to their earnings growth. Cargurus has a PEG ratio of 0.70, much lower than the filter's limit of 1.0. A ratio under 1 implies the stock's price may not completely show its growth outlook, an important sign for price-aware growth investors.
• Very Good Financial Condition: Lynch favored companies with good financial records to handle economic slowdowns.
  • The company has a Debt/Equity ratio of 0.0, showing no debt and doing much better than Lynch's liking for a ratio under 0.6. This means a low-risk financial setup paid for completely by ownership.
  • Its Current Ratio of 3.18 shows strong cash availability, easily paying for near-term needs and giving a good safety buffer.
• High Earnings Ability: Return on Equity (ROE) shows how well a company makes profits from owner money. Cargurus has an ROE of 29.80%, doing much better than the filter's 15% lowest point. This high level of effectiveness is a sign of a well-run company and a key part for long-term value building.

Basic Review Summary

A closer look at the company's basic numbers supports the image shown by the filter. The detailed basic report gives Cargurus a good score of 7 out of 10, pointing out its place in the Interactive Media & Services field. The report notes two especially good parts: earnings ability and financial condition. The company gets high marks for its Return on Assets, Return on Invested Capital, and operating margins, showing very effective work. Its perfect debt status and high cash ratios, from having no debt, lead to a top-level condition score. While the price is seen as acceptable in total, the low PEG ratio implies its growth possibility may not be completely included in the price.

Investment Case for GARP Investors

For investors using a GARP method, Cargurus Inc offers a strong argument. It runs a known online car market, a business type that fits with Lynch's suggestion to "invest in what you know." The company shows the standard GARP shape: it is not a risky, no-earnings growth tale, but a money-making business with a shown record of good, lasting earnings growth. Its clean financial record with no debt lowers money risk, while its price, when changed for its growth speed, looks acceptable. This mix of safe strength and growth possibility makes it an option for a long-term, buy-and-keep portfolio, exactly the kind of investment Peter Lynch supported.

The Peter Lynch method filter can be a useful beginning step for finding possible investments. You can look at the present results of this filter and find other companies that meet these measures.

Disclaimer: This article is for information only and is not financial guidance, a suggestion, or a bid to buy or sell any securities. The views given are from a study of public information. Investors should do their own study and talk with a registered financial consultant before making any investment choices.