Otter Tail Corp (NASDAQ:OTTR): A Peter Lynch-Style GARP Investment

Peter Lynch's investment philosophy focuses on finding reasonably priced growth companies with good financial condition, a method often called Growth at a Reasonable Price (GARP). His system highlights lasting earnings growth, solid valuation measures like the PEG ratio, low debt, and strong profitability. This method steers clear of speculative investments, favoring businesses with steady, clear operations that can produce long-term gains. Investors using this filter look for companies that are both expanding and financially sound, trading at prices that do not exaggerate their future potential.

Meeting the Lynch Criteria

Otter Tail Corp (NASDAQ:OTTR) appears from a filter based on Peter Lynch's strategy, showing a good fit with its main ideas. The company's financial numbers meet the specific quantitative criteria Lynch supported, indicating a profile of lasting growth, fair valuation, and financial strength.

• Sustainable Earnings Growth: The company has reached an EPS growth of 26.89% on average over the last five years. This number easily passes Lynch's minimum requirement of 15% and stays under his upper limit of 30%, pointing to a growth rate that is both solid and possibly maintainable without being excessive.
• Attractive Valuation via PEG Ratio: A key part of Lynch's strategy is the Price/Earnings to Growth (PEG) ratio, which he liked to be at or under 1. Otter Tail's PEG ratio of 0.43 suggests the market could be substantially undervaluing its stock compared to its past earnings growth. This was an important measure for Lynch to locate companies where the stock price had not yet reflected the growth narrative.
• Strong Profitability: With a Return on Equity (ROE) of 16.13%, the company exceeds Lynch's needed 15% standard. A high ROE is a vital sign of management's effectiveness in producing profits from shareholders' equity, a trait Lynch valued in the companies he invested in.
• Conservative Financial Health: The company keeps a Debt-to-Equity ratio of 0.59, which matches the filter's condition of being below 0.6 and near Lynch's own preference for a ratio under 0.25. Also, its Current Ratio of 3.31 shows very good short-term financial liquidity, well above the minimum requirement of 1 and indicating a solid capacity to cover its short-term debts.

Fundamental Analysis Overview

A detailed fundamental analysis of Otter Tail Corp gives it an overall score of 6 out of 10. The report notes two especially solid parts of the company's financial position. Its profitability is scored as high, with industry-best margins and returns on assets and invested capital. At the same time, the company shows very good financial condition, mainly due to its exceptional liquidity ratios, which are some of the top in its industry. The main point of interest is its growth; while the company has a good past growth record, the analysis states that future growth projections are more moderate. From a valuation viewpoint, the company seems to be priced fairly compared to its industry, with a P/E ratio that is appealing both in its sector and against the wider S&P 500.

A GARP Candidate for the Long Term

For investors looking for growth at a reasonable price, Otter Tail Corp offers a strong case that fits a disciplined, Lynch-based system. It is not a speculative, high-volatility stock, but instead a company working in necessary areas like energy and infrastructure. Its good past growth, high profitability, and solid balance sheet are paired with a valuation that does not seem overestimated. The company's small dividend yield and dependable history of payments provide an additional element of interest for long-term, return-focused investors. While future earnings growth is expected to slow, the company's basic strengths and current price indicate it is suitably placed as a GARP investment for a varied, long-term portfolio.

For investors wanting to do their own research, more companies that pass the Peter Lynch filter can be located using our stock screener tool.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented should not be used as the sole basis for any investment decision. All investments involve risk, including the possible loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.