GENMAB A/S -SP ADR (NASDAQ:GMAB) Passes Peter Lynch's GARP Investment Screen

The investment philosophy of Peter Lynch, the former manager of the Fidelity Magellan Fund, focuses on finding good growth companies available at sensible prices, a strategy often called Growth at a Reasonable Price (GARP). Lynch’s method, described in his book One Up on Wall Street, stresses lasting earnings growth, sound financial condition, and good value. He supported investing in businesses that are easy to understand and have a history of performance, preferring companies with steady but not extreme growth, as very high growth is frequently not maintainable. An important measure he used is the Price/Earnings to Growth (PEG) ratio, which aids in finding stocks where the price may not fully account for the company’s growth path.

A recent filter using Lynch’s main standards has found GENMAB A/S -SP ADR (NASDAQ:GMAB) as a possible choice for long-term investors. The Danish biotechnology firm, recognized for creating antibody treatments for cancer and other illnesses, seems to fit several parts of the Lynch approach.

Matching the Lynch Standards

The filter uses particular, measurable rules taken from Lynch’s ideas. Here is how GENMAB compares against these important rules:

• Lasting Earnings Growth: Lynch looked for companies with a solid but controlled growth rate. The filter asks for a 5-year average annual EPS growth between 15% and 30%. GENMAB’s EPS has increased at a notable 28.38% over the last five years, putting it at the top of this maintainable range and showing a strong, confirmed growth driver.
• Sensible Valuation (PEG Ratio): Maybe the most important Lynch measure is the PEG ratio, which modifies the common P/E ratio for growth. A PEG of 1 or lower implies the stock could be priced fairly or low relative to its growth. GENMAB’s PEG ratio, calculated from its past five-year growth, is 0.47, much lower than the limit. This shows that even with its solid growth, the stock’s price does not seem too high.
• High Profitability (Return on Equity): Lynch preferred companies that produce high returns on shareholder equity. The filter requires an ROE above 15%. GENMAB greatly passes this with an ROE of 25.76%, showing very good use of its equity to create profits.
• Sound Financial Condition: To steer clear of risky companies with too much debt, Lynch highlighted strong balance sheets. The filter looks for a Debt/Equity ratio under 0.6 and a Current Ratio above 1.
  • GENMAB’s Debt/Equity ratio is a very small 0.02, showing almost no use of debt for funding, a trait Lynch would have liked.
  • Its Current Ratio of 6.03 shows more than enough cash to meet near-term needs, giving a good safety margin.

General Financial Condition and Valuation Summary

A wider view of GENMAB’s financial picture supports the finding from the Lynch filter. The company gets a solid overall financial rating of 7 out of 10. Its profitability is rated very high, supported by top-tier margins and returns on assets and invested capital. Financially, the company is in very good shape, with a strong cash position and an Altman-Z score that points to a minimal chance of financial trouble.

Regarding valuation, the situation is not one-sided but is generally good. GENMAB’s standard P/E ratio of 13.34 is low compared to both the wider S&P 500 and other biotechnology companies. However, its forward P/E is greater, and the report mentions a high PEG ratio based on expected growth forecasts, implying the market has already accounted for some of the anticipated slower growth. This highlights the Lynch filter’s use: it finds companies based on confirmed, past growth combined with a present sensible price, as seen in the good past PEG ratio of 0.47.

You can see the complete, itemized look at the company’s finances in the GENMAB fundamental analysis report.

Fit for GARP Investors

For investors looking for growth at a sensible price, GENMAB makes a strong argument. It works in the creative but sometimes unsteady biotechnology field, yet it shows the financial steadiness and profitability usually linked with more established companies. The mix of a balance sheet with almost no debt, high profitability, and a record of excellent earnings growth traded at a PEG ratio under 0.5 forms a profile that matches the Lynch philosophy closely. It shows a growing company that has already demonstrated its business plan and financial control, not just a risky guess on future promise.

While future growth in both sales and earnings is predicted to slow from its very fast past rate, the company’s financial strength offers protection against unpredictability. For a long-term investor, this mix of confirmed growth, sensible value based on that history, and excellent financial condition makes it a stock deserving more study.

Interested in looking at other companies that meet the Peter Lynch filter? You can see the present list of passing stocks and use the filter yourself here: Peter Lynch Strategy Stock Screener.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.