The investment philosophy of Peter Lynch, famous manager of the Fidelity Magellan Fund, focuses on finding well-run, growing companies trading at sensible prices, a strategy often called Growth at a Reasonable Price (GARP). Lynch supported a long-term, buy-and-hold method, concentrating on fundamental soundness and lasting growth instead of market timing. His process uses particular financial filters to find companies with good profitability, solid balance sheets, and prices that do not overvalue future potential. One company that now meets this traditional filter is Fluor Corp (NYSE:FLR).
Meeting the Lynch Criteria
Fluor, a global engineering, procurement, and construction firm, seems to match several important filters in a Peter Lynch-inspired screen. The strategy focuses on lasting growth, financial soundness, and good price, which are measured through specific metrics.
- Lasting Earnings Growth: Lynch looked for companies with a confirmed history of growth, but warned against levels that are improbable to last. Fluor's earnings per share (EPS) has increased at an average yearly rate of 27.7% over the last five years. This good performance is above the screen's usual minimum of 15%, while staying within a span that implies the growth could be lasting instead of a temporary surge.
- Price Justified by Growth (PEG Ratio): A central part of the Lynch method is the Price/Earnings to Growth (PEG) ratio, which tries to find stocks where the price is fair relative to the growth rate. A PEG ratio at or under 1.0 is seen as good. Fluor's PEG ratio, calculated from its past five-year growth, is about 0.69. This shows that, compared to its historical growth, the stock may be trading at a sensible price.
- Good Profitability (Return on Equity): Lynch preferred companies that produce high returns on shareholder equity, a signal of efficient management and a lasting competitive edge. Fluor's Return on Equity (ROE) of 65.3% is very high, well above the screen's usual need of 15% and signaling better profitability within its industry.
- Careful Financial Health: To limit high risk, the strategy requires a solid balance sheet. Fluor shows this with a Debt-to-Equity ratio of 0.21, which is not only under the screen's maximum of 0.6 but also matches Lynch's own liking for a ratio below 0.25. Also, its Current Ratio of 1.45 indicates it keeps enough short-term assets to meet its near-term obligations, passing another of Lynch's financial health tests.
Fundamental Soundness Check
While the Lynch screen points out specific positives, a wider view of Fluor's fundamental profile shows a more varied situation. According to ChartMill's detailed study, Fluor gets a low overall fundamental score of 3 out of 10. The company scores well on some profitability and health metrics, its high ROE, profit margin, and careful debt levels are clear strengths that fit the Lynch idea.
However, the report mentions difficulties in other parts. Growth has been uneven, with recent yearly drops in both revenue and EPS. Price is noted as high on a basic P/E basis, though it seems more sensible compared to its industry group. This highlights a main part of the Lynch method: a screening tool is only the beginning. Meeting the screen marks Fluor as a possibility deserving of more detailed, individual study to learn the causes for its high ROE, the durability of its earnings strength, and the explanations for its recent growth decrease.
You can see the complete fundamental analysis for Fluor Corp here.
A Possibility for More Study
For investors who favor the Peter Lynch philosophy of finding sensibly-priced growth, Fluor Corp offers an interesting example. It successfully meets several of the strategy's number-based filters, especially showing outstanding profitability and a careful capital structure combined with a good PEG ratio. These are the signs of the "GARP" style Lynch supported.
The screen is made to create a beginning list for a varied long-term portfolio. Fluor’s presence suggests it justifies a more detailed examination to decide if its business model, serving the energy, urban infrastructure, and government sectors, has the lasting competitive edges and steady demand that Lynch prized.
Interested in finding other companies that fit this proven strategy? You can use the live Peter Lynch stock screen yourself here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data and a defined screening methodology; it is not a substitute for individual research and due diligence. Investing involves risk, including the potential loss of principal.
