Otter Tail Corp (NASDAQ:OTTR) Passes Key Peter Lynch Investment Filter

For investors looking for a disciplined, long-term way to build wealth, few strategies are as respected as Peter Lynch's method. The famous manager of Fidelity's Magellan Fund supported investing in what you understand, concentrating on companies with clear businesses, steady growth, and fair prices. His thinking, often called Growth at a Reasonable Price (GARP), avoids speculative trends and looks for sound companies that can be owned for many years. A main instrument for using this strategy is a systematic filter that sorts for particular financial strength, profit, and valuation measures.

One company that recently appeared from this type of Peter Lynch-inspired filter is Otter Tail Corp (NASDAQ:OTTR). This diversified holding company works in electric utilities, manufacturing, and plastics, sectors that match Lynch's liking for "simple" and clear businesses. Let's review how OTTR compares to the main parts of this long-term investment strategy.

Alignment with Peter Lynch Criteria

The filter uses specific numerical checks to find companies matching Lynch's preferred model. Otter Tail Corp passes these main tests:

• Steady Earnings Growth: Lynch wanted companies increasing steadily, not suddenly. The filter needs a 5-year earnings per share (EPS) growth between 15% and 30%. OTTR's EPS has increased at an average yearly rate of 26.89% over this time, showing firm, maintained profit that fits within Lynch's chosen steady range.
• Fair Valuation (PEG Ratio): Possibly the central idea of the GARP method, the Price/Earnings to Growth (PEG) ratio checks if a stock's price is fair compared to its growth rate. Lynch preferred a PEG ratio of 1 or lower. OTTR stands out here with a PEG ratio of 0.46, suggesting the market might be pricing its past growth too low.
• High Profit (ROE): Return on Equity (ROE) shows how well a company creates profit from shareholder money. Lynch looked for high profit, with a minimum ROE of 15%. OTTR's ROE of 15.24% meets this level, pointing to good management and a firm market position.
• Financial Strength (Debt & Cash): A careful balance sheet was very important for Lynch. The filter checks for a Debt-to-Equity ratio below 0.6 and a Current Ratio above 1. OTTR shows careful financial management with a Debt/Equity ratio of 0.57 and a very high Current Ratio of 3.57, showing it has enough cash to meet near-term needs.

Fundamental Health Check

A wider view of Otter Tail's basics, as shown in a detailed fundamental analysis report, supports the image from the filter. The company gets a good total fundamental score, with special strong points in two areas Lynch would like:

• Very High Profit: OTTR's profit measures are scored "excellent," doing better than most of its competitors in the Electric Utilities industry. Its profit margin above 21% and operating margin close to 27% are notable numbers, showing the company's skill at turning sales into earnings effectively.
• Firm Financial Strength: The company's health score is high, mainly because of "excellent" cash availability. The high Current and Quick Ratios mentioned before are some of the top in its industry, giving a good safety net against economic shifts, a main point for long-term owners.

The report mentions two points to think about. First, while past growth has been high, forecasts for closer-term EPS growth have slowed. Second, the valuation is seen as average for the industry, which, together with its high profit and low PEG ratio, might be viewed as a chance instead of high pricing.

A Stock for the Long Term?

Otter Tail Corp makes a strong argument for investors who follow the Peter Lynch philosophy. It works in basic, ordinary sectors, electric power, manufacturing parts, and PVC pipe, that support the economy. This fits with Lynch's suggestion to invest in what you know. The numerical filter results show it has provided the kind of steady historical growth, high profit, and careful financing that Lynch valued, all while being priced in a way that seems fair compared to that growth.

For investors making a varied, long-term portfolio, OTTR is the kind of basic stock that can be studied more and kept with patience, no matter of near-term market changes. It shows the idea of looking for good growth without paying too much for it.

Want to find other companies that match this disciplined strategy? You can see and adjust the Peter Lynch Strategy filter to find more possible choices.

Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. The Peter Lynch strategy is a historical method, and past results of a filter tool do not predict future outcomes. Investors should do their own full research and think about their personal money situation and risk comfort before making any investment choices.