In the hunt for long-term investment prospects, many investors consider methods that combine the search for expansion with a careful view on price. One highly regarded method is that of Peter Lynch, the famous leader of the Fidelity Magellan Fund. His thinking, often called Growth at a Reasonable Price (GARP), focuses on putting money in firms with solid, lasting expansion, very good financial condition, and earnings, all while making sure the share price does not exceed the business's real worth. This technique steers clear of risky, high-priced stocks for the sake of clear businesses that can provide steady results over ten years or longer.
A recent filter created from Lynch's main ideas has found Cargurus Inc (NASDAQ:CARG) as a possible choice matching this pattern. The online vehicle marketplace, which links car purchasers and dealers through its digital system, seems to match a number of important Lynch standards, indicating it could justify more examination from investors with a long-term view.
Match with Peter Lynch's Investment Guidelines
The Lynch method is not about following the latest fad but discovering financially sound companies expanding at a maintainable speed. The filter uses particular, measurable conditions to find such businesses. Here is how Cargurus measures up to these important guidelines:
- Lasting Earnings Expansion: Lynch wanted companies with a confirmed history of growth, but was cautious of impossibly high speeds. The filter demands a 5-year earnings per share (EPS) expansion between 15% and 30%. Cargurus states a notable EPS expansion speed of 26.7% over this time, easily inside the desired zone. This shows a solid and regular increase in earnings that is fast but not extreme.
- Sensible Price (The PEG Ratio): Maybe the central part of the GARP method, the Price/Earnings to Growth (PEG) ratio judges a stock's price against its earnings expansion. A PEG of 1 or less indicates the stock could be fairly valued compared to its growth path. Cargurus stands out here with a PEG ratio of 0.49, much lower than the limit. This small number, coming from its P/E ratio of 13.07 and its solid historical growth, suggests the market may not completely value the company's past results.
- Solid Financial Condition: Lynch preferred companies with clear balance sheets. The filter requires a Debt/Equity ratio under 0.6 and a Current Ratio of at least 1. Cargurus performs well on both points, functioning with no debt (Debt/Equity of 0.0) and a strong Current Ratio of 2.87. This shows a company with enough cash to cover immediate needs and the financial strength to survive economic slowdowns without the weight of interest costs.
- High Earnings: To make sure growth is effective and good for shareholders, the method needs a high Return on Equity (ROE). Cargurus provides an outstanding ROE of 40.5%, greatly exceeding the 15% minimum. This measure shows the company's skill at producing significant earnings from the money shareholders have provided, a mark of good management and a strong market position.
Basic Condition and Quality
Apart from the specific filter conditions, a wider view of Cargurus's basic picture supports its quality. According to a complete basic examination report, the company gets a high total score of 7 out of 10, with special force in financial condition and earnings.
The condition score of 9/10 is supported by its lack of debt and solid cash position. The earnings score of 8/10 points out better margins and returns compared to many others in the Interactive Media & Services field. For example, its Operating Margin of 22.5% and Return on Invested Capital (ROIC) of 23.5% place in the best group of its industry. While sales growth has been more limited lately, the main earnings source stays effective and productive.
Growth at a Reasonable Price Overview
For investors following the Peter Lynch/GARP thinking, Cargurus shows a notable picture. It is not a risky concept stock but an earning company in the clear, though contested, area of online vehicle sales. The mix of solid historical earnings growth, a clean balance sheet, and first-class earnings meets Lynch's standards for a lasting business. Importantly, this quality is offered at a price that seems fair, as shown by the low PEG and P/E ratios that are under both industry and wider market norms. This makes a situation where an investor is not paying too much for past achievement.
It is key to remember that any filter is a first step for more study. Lynch himself highlighted the need to know the business, its competitive edges, market directions, and possible dangers, before investing.
Reviewing More Investment Options
The Peter Lynch method is made to find companies with this particular mix of growth, price, and quality. Cargurus is one of the stocks that met this strict filter. For investors curious about seeing other companies that currently fit these conditions, you can review the complete set of results using the Peter Lynch Strategy stock filter.
Notice: This article is for information only and is not financial guidance, a suggestion, or a plan to buy or sell any securities. The examination uses data and a set filtering system. Investors must do their own complete study and think about their personal money situation and risk comfort before making any investment choices. Past results do not guarantee future outcomes.
