Mueller Water Products Inc-A (NYSE:MWA) Passes Peter Lynch's GARP Investment Screen

The investment method of Peter Lynch, the famous manager of Fidelity's Magellan Fund, stresses finding companies with good, lasting growth that are available at fair prices, a plan often called Growth at a Reasonable Price (GARP). His method, explained in One Up on Wall Street, centers on basic financial soundness, profit generation, and price assessment, avoiding risky, high-priced stocks for clear businesses with lasting strengths. A stock filter using Lynch's ideas searches for companies with steady profit increases, firm financials, high returns on equity, and a good price considering the growth rate.

One company that recently appeared from this kind of filter is Mueller Water Products Inc-A (NYSE:MWA). The Atlanta-based company makes many products needed for moving, delivering, and measuring water, like valves, fire hydrants, and systems to find leaks. While not a glamorous technology firm, it works in the important infrastructure field, the kind of "ordinary" but necessary company Lynch frequently liked.

Matching the Lynch Standards

A Peter Lynch-style filter uses several important tests to find prospects. Mueller Water Products seems to fit these main needs, which are made to find sound, increasing companies without paying too much for that increase.

• Lasting Profit Growth: Lynch wanted companies increasing earnings per share (EPS) between 15% and 30% each year over five years, thinking growth outside this band was either too low or not maintainable. Mueller Water Products states a five-year EPS growth rate of 20.76%, putting it directly inside Lynch's preferred area. This shows a record of steady, moderate expansion.
• Good Price Compared to Growth: The Price/Earnings to Growth (PEG) ratio is a key part of the plan, trying to find stocks where the P/E ratio is fair given the growth rate. A PEG ratio at or under 1.0 is usually seen as good. MWA's PEG ratio, using its past five-year growth, is 0.91, hinting the market may not completely account for its historical growth path.
• High Profit Generation: Lynch needed a high Return on Equity (ROE) as a mark of an effective and profitable company. MWA's ROE of 19.53% is much higher than the 15% minimum level often used in Lynch filters, showing management is good at creating profits from shareholder investment.
• Financial Soundness: To confirm stability, Lynch stressed strong finances. Two main measures point out MWA's financial condition:
  • Debt/Equity Ratio: At 0.46, the company is funded more by investment than debt, displaying a careful financial setup. This is much lower than the filter's usual ceiling of 0.6 and matches Lynch's liking for little debt.
  • Current Ratio: A gauge of short-term cash availability, MWA's current ratio of 3.54 shows strong ability to meet its upcoming costs, giving a good safety buffer.

Basic Financial Review

A wider view of Mueller Water Products' basic finances, as described in its detailed analysis report, supports the image from the Lynch filter. The company gets a firm total fundamental score of 7 out of 10.

The report notes particular strength in profit generation and financial soundness. Profit levels are strong and getting better, with the company doing better than most of its industrial equipment competitors. The health score is supported by very good cash measures and a workable debt amount, with an Altman-Z score showing no close-term failure danger.

The price assessment view is varied but generally good. While the normal P/E ratio seems somewhat high alone, it seems more fair compared to both the wider S&P 500 and its industry norm. The central issue is future growth; analysts expect a notable reduction in both sales and EPS growth in the next few years. This highlights a main idea of the Lynch method: the filter gives a first list, and investors must do more study to decide if past growth can continue.

Is MWA a Lynch-Type "GARP" Stock?

For investors looking for growth at a fair price, Mueller Water Products offers an interesting example. It meets the needs of the standard Lynch list: a record of good, maintainable profit growth, high profit generation, a very strong financial position, and a price that seems fair when its growth history is reviewed. The company works in a stable, needed infrastructure area, fitting with Lynch's suggestion to invest in what you know.

However, the Lynch plan is not a basic "buy and ignore" based on a filter. The essential following action is non-number-based study. An investor must evaluate the company's competitive edge, the reasons for its past growth, and management's plan to handle a possible growth slowdown. The filter finds the chance, but the investor's own work confirms its worth for a long-term holding.

If you want to look at other companies that pass a similar group of careful, growth-focused tests, you can see the present results of the Peter Lynch Strategy stock filter.

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Disclaimer: This article is for information only and is not financial guidance, a support, or a suggestion to buy, sell, or keep any security. Investing has risk, including the possible loss of money. Always do your own full study and think about your personal money situation and risk comfort before making any investment choices.