ALPHABET INC-CL A (NASDAQ:GOOGL) Fits Peter Lynch’s Investment Strategy with Strong Growth and Financial Health

Peter Lynch’s investment strategy, described in One Up on Wall Street, centers on finding companies with steady growth, fair valuations, and solid financials. The method mixes growth and value investing, focusing on businesses that show reliable earnings growth without high debt or overpriced shares. Lynch’s standards highlight a PEG ratio under 1 (linking price-to-earnings with growth), strong profitability (ROE > 15%), and low debt (Debt/Equity < 0.6) to ensure lasting stability.

ALPHABET INC-CL A (NASDAQ:GOOGL) stands out as a strong fit under this model. The company’s financials match Lynch’s ideas, blending steady growth with careful money management.

Key Metrics Matching Peter Lynch’s Approach

1. Steady Growth at a Fair Price

   • PEG Ratio (Past 5 Years): 0.91 – Below Lynch’s limit of 1, showing GOOGL’s price fits its past earnings growth (25.25% yearly over 5 years). This measure is key to Lynch’s method, as it prevents paying too much for growth.
   • EPS Growth: The firm’s 26.97% EPS growth in the last year and 15.78% expected future growth show a mix of speed and steadiness, a sign of Lynch’s "growth at a reasonable price" (GARP) idea.

2. Profitability and Efficiency

   • ROE of 31.85% – Much higher than Lynch’s 15% minimum, pointing to smart use of shareholder funds. High ROE matters to Lynch, as it hints at a lasting edge.
   • Return on Invested Capital (ROIC): 25.81% – Confirms GOOGL’s skill in earning more than its costs, another Lynch priority for long-term gains.

3. Financial Strength

   • Debt/Equity: 0.07 – Far below Lynch’s 0.25 limit, showing little debt use. Low debt cuts risk in tough times.
   • Current Ratio: 1.90 – Shows enough cash to handle short-term needs, fitting Lynch’s stress on steady operations.

Key Strengths in the Report

ChartMill’s financial review scores GOOGL 7/10, noting its "excellent health and profits" in the Interactive Media & Services field. Main points:

• Profit Margins: Operating margin of 33.53% places it in the top 3% of rivals, backed by scalable areas like search, cloud, and YouTube.
• Growth Path: Revenue has risen 16.68% yearly over 5 years, with experts predicting 10.45% future growth—matching Lynch’s liking for steady, clear expansion.
• Valuation: While the P/E of 23.04 is a bit above the field average, the PEG ratio under 1 and GOOGL’s top profits explain the higher number.

Why This Fits GARP Investors

Lynch’s strategy skips risky growth bets by favoring firms like GOOGL that pair growth with money smarts. The stock’s low debt, high returns, and fair PEG suggest it can grow value without leaning on shaky hype—a good pick for those wanting lasting holdings.

Find More Peter Lynch Screen Picks

For other stocks meeting these rules, see the full Peter Lynch screen here.

Disclaimer: This review is not advice. Do your own research or talk to a financial expert before choosing.