OneSpan Inc. (NASDAQ:OSPN): A Peter Lynch-Style GARP Investment Candidate

In long-term investing, few strategies have received as much respect as the approach supported by Peter Lynch. His methodology, detailed in One Up on Wall Street, highlights identifying companies with good growth potential that are trading at fair prices, a philosophy often called Growth at a Reasonable Price (GARP). Lynch supported a disciplined focus on fundamental measures, avoiding market timing and speculative trends. Investors following his ideas look for firms with lasting earnings growth, good financial health, and acceptable debt, all while making sure the stock is not too expensive relative to its growth outlook. This structure intends to build a strong, long-term portfolio that can handle market cycles and compound returns well.

OneSpan Inc. (NASDAQ:OSPN) appears as an interesting candidate for investors using Lynch’s strategy, based on a recent screen of stocks meeting his requirements. The company, which provides security solutions for digital transactions and identity verification, matches well with several main Lynch ideas:

• Earnings Growth and Sustainability: Lynch preferred companies with good but not extreme earnings growth, usually between 15% and 30% each year to prevent unmaintainable increases. OneSpan’s earnings per share have increased at an average rate of 19.39% over the past five years, putting it directly within this preferred range. This shows a healthy, maintainable growth path that Lynch would probably find positive, as it implies the company is growing without stretching its limits.

• Fair Valuation via PEG Ratio: Important to Lynch’s method is the PEG ratio, which changes the price-to-earnings ratio for growth, with a value under 1 suggesting possible undervaluation. OneSpan’s PEG ratio is 0.52, much lower than the limit, indicating the stock could be priced well relative to its growth. This measure is vital in Lynch’s strategy because it helps find companies that are not only increasing but are also priced in a manner that provides a safety buffer.

• Good Profitability and Financial Health: Lynch valued high return on equity (ROE) as a signal of efficient management and profitability. OneSpan’s ROE of 24.70% is above the 15% minimum Lynch suggested, highlighting its ability to create value from shareholders’ equity. Also, the company has no debt, greatly exceeding Lynch’s liking for a debt-to-equity ratio under 0.6 (and preferably below 0.25). This lack of debt improves financial steadiness and lowers risk, matching Lynch’s focus on lasting businesses.

• Liquidity and Operational Soundness: With a current ratio of 1.77, OneSpan shows enough liquidity to cover near-term responsibilities, satisfying Lynch’s requirement for financial strength. This is significant because it confirms the company can manage economic declines without liquidity problems, a necessary part of long-term investing.

Apart from these screen-based measures, a wider view of OneSpan’s fundamental profile, detailed in the full fundamental analysis report, supports its attractiveness. The report gives the company a good rating, noting very good profitability metrics like high return on invested capital and getting better margins, along with strong financial health shown by no debt and a satisfactory Altman-Z score. While revenue growth has been slow lately, the company’s valuation seems appealing compared to industry competitors and the wider market, with low P/E and enterprise value-to-EBITDA ratios. These elements together indicate a company that is not only growing effectively but is also low-priced, fitting well into the Lynch model of discovering undervalued growth stocks.

For investors wanting to examine other companies that meet Peter Lynch’s requirements, the stock screener used to find OneSpan provides a selected list of possible opportunities, enabling more study and comparison.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consider their financial situation and risk tolerance before making any investment decisions.