ENERSYS (NYSE:ENS) Embodies Peter Lynch's GARP Strategy with Strong Growth and Value

In long-term investing, few strategies have shown the lasting appeal and real-world results of Peter Lynch’s method, which highlights finding expanding businesses available at sensible prices. Lynch, who notably led the Magellan Fund to exceptional returns, supported a system that mixes parts of growth and value investing, often called GARP (Growth at a Reasonable Price). His filter looks for lasting earnings expansion, good financial condition, high profitability, and appealing valuation, especially as seen through the PEG ratio. People using this method look for firms that are not only growing but also valued in a manner that provides a safety buffer, steering clear of the excesses of either highly promoted growth equities or low-priced recovery stories.

One firm now meeting this filter is ENERSYS (NYSE:ENS), a supplier of stored energy solutions for industrial uses including data center backup power and motive power for forklifts and automotive systems. An examination of its financials shows multiple traits that fit well with Lynch’s standards.

• Lasting Earnings Expansion: Lynch preferred firms with stable, controlled growth, usually from 15% to 30% per year, to prevent unmaintainable increases. ENERSYS displays a five-year EPS growth rate of 16.84%, fitting well inside this band. This points to a record of reliable, realistic growth instead of irregular or excessive results, lowering the chance of a sudden decline.

• Appealing Valuation through PEG Ratio: Key to Lynch’s system is the PEG ratio, which modifies the standard P/E ratio for growth, aiding in spotting firms that are priced low compared to their growth path. ENERSYS has a PEG ratio of 0.59, much lower than the Lynch benchmark of 1. This implies the market could be pricing its growth potential too low, providing what Lynch might name a “double play”—a quality company available at a quality price.

• High Profitability and Effectiveness: Lynch gave great importance to return on equity (ROE) as a gauge of how well management produces earnings from shareholder capital. ENERSYS has an ROE of 18.98%, above the 15% minimum Lynch advised. Elevated ROE frequently links to durable benefits and operational strength, both signs of Lynch’s top investments.

• Good Financial Condition: To confirm durability, Lynch needed firms to keep low debt and high liquidity. ENERSYS reports a debt-to-equity ratio of 0.57, under the filter’s maximum of 0.6 and shows a measured use of financing. Also, its current ratio of 2.70 shows strong short-term liquidity, decreasing monetary risk and matching Lynch’s liking for fiscally sound businesses.

A look at the full fundamental analysis report for ENERSYS gives more support to this view. The firm gets an overall fundamental score of 7 out of 10, with high marks in profitability (9/10) and valuation (8/10). It does very well in return on invested capital and margins against industry competitors, and its P/E ratios are positive compared to both the industry and wider market. Some care is mentioned around future growth projections and debt amounts, but these are balanced by solid past performance and effective use of capital.

For people wanting to review other firms that match Peter Lynch’s investment standards, more screening outcomes can be found here.

ENERSYS presents a strong example for GARP-focused investors, merging disciplined growth, sensible valuation, and sound financials, qualities Peter Lynch viewed as key for long-term success. As with all investments, proper research and ongoing review are recommended.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.