FLUOR CORP (NYSE:FLR) Stands Out as a Peter Lynch-Style GARP Investment

The investment philosophy created by Peter Lynch stresses finding companies with good growth potential that are available at fair prices, a method frequently called Growth at a Reasonable Price (GARP). This method looks for firms showing steady earnings increases, good financial condition, and appealing prices, steering clear of both risky high-growth companies and inactive value traps. By focusing on businesses with clear operations and established histories, investors can create varied portfolios designed to do well over long periods.

Evaluating the Lynch Criteria

Fluor Corp (NYSE:FLR) appears as a candidate worth looking at under this system. The engineering and construction company meets a number of important checks from the Lynch-based stock filter, which looks for companies with controlled growth and good finances.

• Steady Earnings Growth: The filter calls for a 5-year earnings per share (EPS) growth rate between 15% and 30%. Fluor's past EPS growth of 27.7% fits within this desired range, showing a solid, but not excessive, speed of increase that Lynch viewed as maintainable.
• Appealing Price Relative to Growth: A fundamental part of the Lynch method is the PEG ratio, which needs to be at or below 1.0. Fluor's PEG ratio of 0.74 indicates the stock is priced low relative to its past earnings growth, a good signal for investors looking for a safety buffer.
• High Profitability: The filter requires a Return on Equity (ROE) above 15%. Fluor's ROE of 69.5% is much higher than this level, pointing out the company's great skill at creating earnings from shareholder equity.
• Good Financial Condition: Lynch preferred companies with careful balance sheets. Fluor's Debt-to-Equity ratio of 0.18 shows a small dependence on debt funding, which matches Lynch's liking for ratios below 0.25. Also, its Current Ratio of 1.62 shows sufficient cash to cover near-term debts.

Fundamental Condition Summary

A wider fundamental analysis of Fluor gives it an average score of 5 out of 10, showing a varied result across different financial areas. The company's health picture is fairly good, backed by a small debt amount and adequate cash measures. Its profitability has two sides: while its Return on Assets and Profit Margin are some of the top in the Construction & Engineering field, its Operating Margin and Return on Invested Capital are not as strong. From a price standpoint, Fluor seems fairly valued compared to its industry counterparts, although its P/E ratio is a bit high on its own. The most notable point of caution is growth, where the company has seen a recent drop in earnings, but future income and earnings are expected to go back to a positive path.

Investment Points for the Long Term

For investors following the GARP philosophy, Fluor offers an interesting example. It successfully meets a strict, rule-driven filter modeled after one of history's top investors, satisfying the requirements for historical growth, price, profitability, and financial strength. The company's work in necessary, long-term fields like energy, infrastructure, and government services gives a level of business predictability and fits with the Lynch idea of investing in what you can comprehend. While the recent earnings decrease and mixed fundamental score call for more individual research, the main measurements sought by the Lynch strategy stay solid. The important point for long-term investors, as Lynch suggested, would be to determine if the company's market position and industry support can help a return of its earnings growth over the next ten years.

For investors curious about finding other companies that match this controlled method, you can view the current results of the Peter Lynch stock screen here.

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. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.