SPROTT PHYSICAL GOLD TRUST (NYSEARCA:PHYS) Passes the Peter Lynch GARP Filter

Investors looking for a disciplined, long-term market method often consider the principles of legendary fund manager Peter Lynch. His strategy, outlined in his book One Up on Wall Street, centers on finding companies with lasting growth, sound financial condition, and fair prices, a philosophy often called Growth at a Reasonable Price (GARP). The central concept is to locate businesses that are increasing reliably but are not excessively promoted or costly, letting investors gain from compounded returns over long periods without accepting undue risk. A methodical filter using Lynch's main financial measures can reveal possible choices that justify more study.

One stock that recently appeared from a Peter Lynch-influenced filter is Sprott Physical Gold Trust (NYSEARCA:PHYS). This closed-end trust offers a distinct proposition: it gives investors a secure, exchange-traded method to obtain access to physical gold bullion. Unlike mining firms, PHYS seeks to follow the price of gold by holding assigned, unencumbered metal in vaults. For investors using a GARP perspective, the trust offers an interesting examination of how Lynch's numerical filters relate to a non-operating entity in the commodities sector.

Matching the Lynch Measures

The Peter Lynch filter uses several strict measures to find companies with a particular financial shape. SPROTT PHYSICAL GOLD TRUST (PHYS) matches these core measures, which are intended to point out lasting growth, financial soundness, and good value.

• Lasting Earnings Growth: Lynch preferred companies with steady, but not extreme, earnings growth. The filter demands a 5-year average annual EPS growth between 15% and 30%. PHYS states a notable 5-year EPS growth rate of 18.47%, fitting within this target zone. This shows a consistent upward path in per-share earnings, a main part of the method.
• Fair Value (PEG Ratio): Maybe the most important Lynch measure is the Price/Earnings to Growth (PEG) ratio, which tries to value a company compared to its growth rate. A PEG of 1 or less is seen as good. PHYS stands out here with a PEG ratio of 0.25, hinting the market might be pricing its past growth too low. This low PEG is a central idea of the "reasonable price" part of GARP investing.
• Outstanding Financial Condition: Lynch highlighted investing in companies with solid balance sheets. The filter requires a Debt/Equity ratio under 0.6 and a Current Ratio above 1. PHYS does very well on both points, stating no debt and a very high Current Ratio of 39,482. This shows great liquidity and a very strong balance sheet, removing default risk.
• High Profit (Return on Equity): To make sure capital is used effectively, the filter needs a Return on Equity (ROE) above 15%. PHYS provides an ROE of 26.73%, showing a solid capacity to create profit from shareholder equity.

A Summary of the Fundamental View

A closer look at the full fundamental analysis report for PHYS gives a detailed view that matches and adds to the filter's outcomes. The trust gets an overall fundamental score of 3 out of 10, which shows a varied view typical for asset-holding trusts instead of operating companies.

The report notes several main points:

• Value: PHYS trades at a P/E ratio of 4.65, which seems low next to the S&P 500 average of 27.3. This backs the filter's finding of a good value.
• Growth: The trust displays very strong past growth in both Revenue and Earnings Per Share, with EPS growing 141% in the last year alone.
• Condition: The financial condition score is a relative positive at 6 out of 10, strongly backed by the lack of debt and outstanding liquidity ratios. A point of care is mentioned about a rise in shares outstanding over the past year.
• Profit: This is a point of worry, with a low score of 1. The trust has stated negative operating cash flow in recent years, which is normal for a physical gold trust that has management and storage costs. It also does not give a dividend.

Is PHYS a Lynch-Method GARP Investment?

Using Peter Lynch's philosophy to SPROTT PHYSICAL GOLD TRUST needs thoughtful study. On a purely numerical basis, PHYS satisfies the number filters very well, especially on growth, value (PEG), and balance sheet soundness. For an investor wanting a GARP-focused, long-term holding in a physical asset, PHYS provides a strong framework to get gold access without the difficulties of direct possession.

However, Lynch also noted the need to know the business you invest in. PHYS is not a standard company that sells products or services; it is a trust that holds one commodity. Its "earnings" growth is mainly pushed by changes in the price of gold and adjustments in shares outstanding, not corporate operational skill. So, while it meets the mechanical measures of the filter, an investor must choose if a commodity trust fits the intent of Lynch's method, which usually concentrated on knowable businesses with lasting competitive strengths.

Interested in reviewing other companies that satisfy the Peter Lynch filter? You can locate the complete, current list of qualifying stocks by going to the Peter Lynch Strategy screener.

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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 analysis presented is based on data and a specific investment strategy filter; it is not a substitute for your own research and due diligence. Investing involves risk, including the potential loss of principal. Past performance of a security or strategy is not a guarantee of future results.