The investment philosophy of legendary fund manager Peter Lynch, as detailed in his book One Up on Wall Street, focuses on finding high-quality companies with lasting growth that are trading at sensible prices. Often called a "growth at a reasonable price" (GARP) method, Lynch’s strategy steers clear of speculative stocks in favor of businesses with sound fundamentals, good financial condition, and a price that does not overvalue future prospects. A central measure in his approach is the PEG ratio, which compares a stock's price-to-earnings (P/E) ratio to its earnings growth rate, trying to find companies where the growth narrative is not yet completely reflected in the market price.
One company that recently appeared from a filter based on Lynch's main criteria is Logitech International SA (NASDAQ:LOGI). The Swiss-American maker of peripherals and software, known for its mice, keyboards, webcams, and gaming equipment, presents a strong case for investors looking for lasting growth without high price risk.
Meeting the Lynch Criteria
The filter uses several numerical rules taken from Lynch's ideas. Logitech's current position matches these rules well, which are made to select for financially stable companies with a confirmed growth history and a good price.
- Lasting Earnings Growth: Lynch preferred companies with solid, but not extreme, growth that could continue. The filter looks for a 5-year earnings per share (EPS) growth rate between 15% and 30%. Logitech's EPS has increased at an average yearly rate of 17.67% over this time, fitting within this range. This shows a history of good, above-normal increase without entering doubtful areas.
- Sensible Price via PEG: Maybe the most Lynch-like measure is the PEG ratio. Lynch looked for companies with a PEG of 1 or lower, indicating the P/E ratio is fair relative to the growth rate. Logitech's PEG ratio, based on its last five-year growth, is 0.99. This means the market is pricing the company nearly in line with its past growth, offering little extra cost for future possibility—a possible opening for GARP investors.
- High Profitability (ROE): A strong Return on Equity (ROE) shows good use of shareholder money. Lynch wanted ROE above 15%. Logitech is well beyond this with an ROE of 31.73%, showing high profitability in its field.
- Sound Financial Condition: Lynch stressed investing in companies with good balance sheets to handle slow periods. The filter requires a Debt/Equity ratio below 0.6 and a Current Ratio above 1. Logitech does very well here, having a Debt/Equity ratio of 0.0 (meaning it has no interest-bearing debt) and a Current Ratio of 2.15. This clean balance sheet gives important operational freedom and lowers risk.
A High-Level Fundamental View
A wider fundamental analysis of Logitech supports the image shown by the Lynch filter. The company receives a high total score, led by two strong areas: Profitability and Financial Health.
Its profitability numbers, including Return on Assets (17.83%) and Return on Invested Capital (23.10%), are in the best group of its hardware industry competitors. At the same time, its perfect balance sheet—shown by no debt, a high Altman-Z score, and ongoing share buybacks—gets a top health score. This pairing of high returns on capital and a very strong balance sheet is a sign of a durable business.
The Valuation and Growth scores are more average, which is common for a GARP candidate. While its P/E ratio of 17.44 is seen as fair compared to both the wider market and its industry, analysts expect a slowing in future growth rates for both sales and earnings. This highlights the Lynch-like quality of the investment thesis: the attraction is not in huge, unsure future growth, but in paying a logical price for a company with an excellent financial history and the steadiness to build returns over time.
Is Logitech a "Peter Lynch Stock"?
For investors following Peter Lynch's ideas, Logitech meets many important conditions. It works in a clear business—making peripherals for the digital world—that many users know directly. It has shown it can increase earnings steadily at a double-digit rate. Most significantly, it pairs this growth with high profitability and a balance sheet with no debt, all while being priced at a PEG ratio that indicates the market is not overvaluing its past performance.
This filtering method can help find other companies with similar traits. You can review the present results of the Peter Lynch strategy filter and see what other companies meet these rules here.
As always, a filter is a beginning for study, not a suggestion to buy. Long-term investors should do more of their own research on the company's competitive strengths, market directions, and management plan before making any investment choice.
, Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
