Investors looking for a disciplined, long-term method for choosing stocks frequently consider the ideas established by famous fund manager Peter Lynch. His plan, explained in One Up on Wall Street, centers on finding expanding businesses with good financial condition that are available at sensible costs. It is a view frequently called "Growth at a Reasonable Price" (GARP), which mixes the search for increase with a watchful focus on price to prevent spending too much for excitement. This process looks for businesses with lasting profit increase, good earnings, controlled borrowing, and a price that does not exceed its increase potential.
One business that recently appeared from such a search is ONESPAN INC (NASDAQ:OSPN), a supplier of digital safety and e-signature products. For investors who follow Lynch's GARP view, an examination of OneSpan shows several notable qualities that fit the main requirements of the plan.
Fit with Lynch's Main Requirements
The Peter Lynch search uses particular checks to locate businesses with a mixed record of increase, price, and financial soundness. OneSpan's present measurements show a good fit with these rules.
- Lasting Profit Increase: Lynch liked businesses increasing earnings per share (EPS) between 15% and 30% each year, thinking this speed could be maintained. OneSpan's five-year EPS increase rate is near 19.4%, fitting well inside this goal area. This shows a past of steady, but not excessive, enlargement.
- Good Price Compared to Increase: A key part of the plan is the PEG ratio (Price/Earnings to Growth), which Lynch wanted to be at or under 1. This measurement helps decide if a stock's cost is fair given its increase rate. OneSpan's PEG ratio, using its past five-year increase, is near 0.42, suggesting the market could be pricing its historical increase path too low.
- Good Earnings: The search needs a Return on Equity (ROE) above 15%, a mark of good use of owner money. OneSpan does well here, with an ROE of 24.4%, putting it with the better performers in its software industry group.
- Sound Financial Condition: Lynch stressed putting money in businesses with good financial records. The search checks for a Debt/Equity ratio below 0.6 and a Current Ratio above 1. OneSpan shows a very clean financial record with no borrowing and a Current Ratio of 1.75, showing more than enough cash to cover near-term needs.
A Broad Basic Picture
Outside the exact search needs, a wider view of OneSpan's basic report describes a business with clear strong points and some areas of softer results. The business gets a good total basic grade, with especially high marks in earnings and price.
- Earnings & Condition: OneSpan's earnings measurements are solid. It has good margins, including a Profit Margin of 24.1% and an Operating Margin of 20.5%, which score well inside the software field. Its Return on Invested Capital (ROIC) of 15.4% further shows good money use. Financially, the business is in very good condition, with no borrowing and an Altman-Z score that points to a small near-term chance of money trouble.
- Price: The price measurements are where OneSpan seems most interesting from a Lynch-type view. With a Price/Earnings ratio of 8.1 and a Forward P/E of 7.6, the stock is priced low compared to both its industry peers and the wider S&P 500. This low earnings multiple, paired with its historical increase, creates the reason for its very good PEG ratio.
- Increase Points: The main area of softer results is in recent and expected increase. While the five-year EPS increase is good, sales increase has been level to a bit down, and future EPS increase guesses are in the low numbers. This shows the need for the Lynch idea of knowing the business; an investor would have to study if present product changes or market plans can speed up sales increase in future times.
For a complete list of these measurements, you can see the full basic study report for OSPN.
Fit for GARP Investors
For the long-term, growth-at-a-sensible-price investor, OneSpan shows a standard example. It is not a very fast increase story, but instead a business with a shown past of profit increase, very good earnings, and a strong financial record, all offered at a price that seems low. This fits well with Peter Lynch's aim of finding clear businesses with lasting plans that do not need constant, very fast enlargement. The low PEG ratio suggests the market has not yet completely valued the business's quality and historical results, possibly giving a safety buffer.
The search that found OneSpan is built on the exact needs of the Peter Lynch plan. If you want to look at other businesses that currently meet this disciplined set of checks for lasting increase and sensible price, you can find more possible choices by going to the Peter Lynch Plan Stock Search Tool.
Notice: This writing is for information only and is not money guidance, a suggestion, or a bid or request to buy or sell any investments. The information shown is based on given facts and should not be the only reason for any money choice. Investors should do their own complete study and talk with a skilled money advisor before making any money choices.
