Mueller Water Products Inc-A (NYSE:MWA) Passes Key Peter Lynch GARP Filter

Investors looking for a disciplined, long-term method for stock selection often consider the principles set out by legendary fund manager Peter Lynch. His strategy, described in his book One Up on Wall Street, centers on finding expanding companies with sensible valuations, an idea commonly called Growth at a Reasonable Price (GARP). The approach steers clear of speculative, high-priced growth stocks in favor of businesses with lasting growth, sound financial condition, and earnings, all available at prices that do not overvalue that future prospect. A filter using Lynch's main standards recently identified Mueller Water Products Inc-A (NYSE:MWA) as a company deserving more examination from investors focused on GARP.

Fit with Peter Lynch's Main Standards

The Peter Lynch filter uses particular numerical tests to sort for companies that fit his view. Mueller Water Products seems to match a number of these important rules, offering a good beginning for basic investigation.

• Lasting Earnings Expansion: Lynch wanted companies with a demonstrated history of growth, but he was cautious of impossibly high rates. The filter demands a 5-year earnings per share (EPS) growth between 15% and 30%. MWA's EPS has increased at an average yearly rate of 20.76% over the last five years, putting it well inside this desired zone. This shows a record of steady, controlled growth without the warning sign of excessive speed.
• Sensible Valuation (PEG Ratio): Possibly the central part of the GARP method, the Price/Earnings to Growth (PEG) ratio measures a stock's price against its earnings growth rate. Lynch preferred stocks with a PEG ratio of 1 or lower, implying the market price is fair compared to the available growth. MWA's PEG ratio, calculated from its past five-year growth, is 0.89, suggesting its current price may not completely account for its historical growth path.
• Sound Financial Condition: Lynch stressed investing in companies with solid balance sheets. Two tests in the filter directly relate to this:
  • Debt/Equity < 0.6: A smaller debt amount lowers financial risk. MWA states a Debt/Equity ratio of 0.48, showing it is funded more by equity than debt and works with a careful capital framework.
  • Current Ratio >= 1: This gauges a company's capacity to pay short-term debts. MWA's Current Ratio of 3.86 is very sound, indicating good liquidity and a clear safety margin for covering immediate responsibilities.
• High Earnings Power (Return on Equity): To confirm shareholder money is being used well, Lynch wanted a high Return on Equity (ROE). The filter sets a minimum of 15%. MWA's ROE of 16.05% is above this limit, proving that management is creating good profits from the equity invested in the company.

Basic Condition and Valuation Setting

Outside the specific filter standards, a wider basic review of Mueller Water Products shows a company with clear positives, especially in earnings power and financial health, although with some points of care about coming growth.

The company's basic report gives it a total score of 6 out of 10, with high marks in Health (7) and Earnings Power (7). The health profile is supported by having no net debt and top-tier liquidity ratios, as seen in the filter standards. Earnings power measures are sound, with the company doing better than most of its machinery industry competitors in Operating Margin (17.69%) and Return on Invested Capital (12.41%).

The valuation situation is varied. While MWA's Price-to-Earnings (P/E) ratio of 18.50 is viewed as high by itself, it is actually lower priced than 73% of its industry peers and the wider S&P 500. This stresses the need for setting; a seemingly elevated P/E may represent acceptable value inside a field. The more notable point from the full basic analysis report is on the growth side, where the score is a softer 3. While past EPS growth has been strong, future projections anticipate a notable reduction to only 3.79% per year. This forward-looking slowdown is a key element for any GARP investor to consider, as it affects the durability of the growth argument.

The Company Behind the Data

The numerical tests indicate a financially stable company, but Lynch's method needs knowing the business itself. Mueller Water Products works in the vital, though ordinary, water infrastructure field. It makes products for the movement, delivery, and measurement of water, including valves, fire hydrants, and leak detection systems. This matches Lynch's liking for "simple" businesses that supply needed, often-bought products and services. The company's activities are linked to city water system upkeep, replacement schedules, and regulation-led improvements, markets defined by long-term, required demand. For an investor, this means a business model with clear causes and a level of stability against economic changes.

A Subject for More Investigation

Mueller Water Products offers an interesting example for the Peter Lynch GARP method. It meets several of his main filters with good scores, displaying a history of profitable growth, a very strong balance sheet, and a price that seems fair when considering its past results. The company works in a steady, necessary field that suits the "invest in what you understand" idea.

However, the filter is a first step, not a conclusion. The clear reduction in anticipated future growth is a major condition that possible investors must study completely. It brings up questions about whether the historical growth rate can continue or if the company is moving into a new, more settled stage.

For investors curious about reviewing other companies that currently meet the Peter Lynch filter, you can locate the live, refreshed list of outcomes here.

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Disclaimer: This article is for information only and does not form financial guidance, a suggestion to buy or sell any security, or a support of any investment plan. The Peter Lynch filter is a model based on historical standards, and past results are not a guide for future outcomes. Investors should perform their own complete investigation and think about their personal financial position and risk comfort before making any investment choices.