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

For long-term investors aiming to build wealth through a disciplined, fundamental method, few strategies are as respected as Peter Lynch's methodology. The famous manager of Fidelity's Magellan Fund supported investing in what you understand, concentrating on companies with durable growth, sound financial health, and fair valuations. His method, often called Growth at a Reasonable Price (GARP), does not choose speculative high-flyers, instead preferring businesses that can provide steady, long-term returns. A filter using Lynch's main ideas recently found Otter Tail Corp (NASDAQ:OTTR) as a possible candidate for more examination.

Examining the Lynch Criteria

The filter used a number of quantitative measures taken from Lynch's thinking. Here is how Otter Tail Corp compares against these important tests:

• Sustainable Earnings Growth: Lynch wanted companies increasing earnings per share (EPS) between 15% and 30% each year over five years, thinking this rate was maintainable. OTTR's five-year EPS growth rate of 26.9% fits inside this target area, showing a good historical record of profit growth.
• Fair Valuation via PEG: A central part of the strategy is the Price/Earnings to Growth (PEG) ratio, which changes the standard P/E ratio for growth. Lynch preferred stocks with a PEG of 1 or lower, implying the market might be pricing the company's growth path too low. With a PEG ratio of 0.49, OTTR seems priced very low relative to its past growth.
• Strong Profitability (ROE): Return on Equity (ROE) shows how well a company creates profits from shareholder equity. Lynch searched for an ROE above 15%. OTTR's ROE of 15.24% meets this level, pointing to capable management and a profitable operation.
• Financial Health and Stability: To confirm strength, Lynch highlighted sound balance sheets. The filter asked for a Debt-to-Equity ratio below 0.6 and a Current Ratio above 1. OTTR easily meets both:
  • A Debt/Equity ratio of 0.57 shows a careful capital structure with more financing from equity than debt.
  • A strong Current Ratio of 3.57 shows sufficient cash to meet near-term debts, giving a good margin of safety.

Fundamental Health Check: More Than the Filter

While the filter gives a good first step, Lynch always noted the need for more careful study. A look at Otter Tail's wider fundamental analysis report shows a company with clear positives and some points to note.

The company receives a high total fundamental score of 7 out of 10, led by very high scores in Profitability (9/10) and good marks in Financial Health (7/10). Its margins and returns on capital are near the best in the Electric Utilities industry. However, the report mentions a lower score in Growth (3/10), showing a recent deceleration and low future earnings projections, a detail that needs thoughtful assessment for a GARP investor.

Investment Case for the Long-Term Investor

For an investor following Peter Lynch's thinking, Otter Tail Corp offers an interesting example. It is not a trendy tech stock but a varied utility and manufacturing holding company, exactly the sort of "ordinary" business Lynch liked for its clarity. The company has produced the type of steady, better-than-average earnings growth Lynch wanted, and it now trades at a price, as shown by the very low PEG ratio, that seems not to account for this historical record.

The good profitability numbers and careful balance sheet match Lynch's emphasis on financial strength, which is important for surviving economic changes. The recent deceleration in growth and earnings outlooks, while a note of caution, is a recall of Lynch's central belief: near-term forecasts are unreliable, but a good company bought at a logical price can benefit those who wait over many years. The main question for a possible investor is if the company's core utilities and manufacturing units can find again a maintainable, mid-single-digit growth course over the long term.

Finding More Investment Ideas

Otter Tail Corp came from a structured search for companies fitting a disciplined investment model. For investors looking to find other possible candidates that meet similar tests for maintainable growth and fair valuation, the Peter Lynch Strategy screen is frequently refreshed and can be a useful tool for more study.

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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The study uses data and a set filtering method. Investors must do their own complete research and think about their personal money situation and risk comfort before making any investment choices. Past results do not guarantee future outcomes.