EOG RESOURCES INC (NYSE:EOG) Meets Peter Lynch’s Growth at a Reasonable Price (GARP) Criteria

Peter Lynch’s investment strategy, described in One Up on Wall Street, centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. The approach relies on fundamental analysis, preferring businesses with solid earnings, low debt, and reliable growth, while steering clear of overly speculative or highly indebted firms. A critical measure in Lynch’s system is the PEG ratio (Price/Earnings to Growth), which compares valuation to growth prospects. Firms that meet his standards usually have a PEG ratio under 1, strong return on equity (ROE), and stable financials.

Why EOG RESOURCES INC (NYSE:EOG) Meets the Lynch Standards

1. Steady Growth at a Fair Price

• PEG Ratio (0.59): EOG’s PEG ratio, calculated from its five-year earnings growth, is significantly lower than Lynch’s benchmark of 1. This suggests the stock is priced below its historical growth rate.
• EPS Growth (18.45% over 5 years): The company’s earnings per share have increased consistently, matching Lynch’s ideal range of 15% to 30% annual growth—enough to build returns without being unrealistic.

2. High Profitability and Effective Capital Use

• ROE (20.59%): Lynch looked for firms with ROE above 15%, as it shows efficient profit reinvestment. EOG’s ROE is better than 85.6% of its oil and gas competitors, proving its ability to create value for shareholders.
• Return on Invested Capital (ROIC) (15.33%): This further demonstrates smart capital allocation, a trait Lynch valued in well-run companies.

3. Sound Finances and Low Debt

• Debt/Equity (0.12): Lynch favored companies with minimal debt, often seeking ratios below 0.25. EOG’s low leverage (better than 76% of industry peers) lowers financial risk and provides flexibility.
• Current Ratio (1.87): The company’s capacity to meet short-term obligations easily surpasses Lynch’s minimum requirement of 1, indicating strong liquidity.

Key Financial Overview

EOG’s fundamental report gives it a score of 6/10, noting its high profitability (7/10) and financial stability (8/10). Key points:

• Valuation: With a P/E of 10.8, EOG is more affordable than 70% of its industry and the S&P 500 (26.4).
• Dividend: A 3.5% yield with 29% annual growth, though future sustainability may be uncertain due to slower earnings growth.
• Growth: While past EPS growth was strong (18.5%), future estimates are modest (~1%), requiring attention.

Final Thoughts

For investors looking for Lynch-style GARP opportunities, EOG’s mix of fair pricing, profitability, and disciplined finances makes it worth considering. Its ties to the energy sector introduce volatility, but the company’s operational strength and cautious financing help reduce risks.

To discover more stocks aligning with Peter Lynch’s criteria, see the full screen here.

Disclaimer: This analysis is not investment advice. Perform your own research or consult a financial advisor before making investment decisions.