PTC Inc. (NASDAQ:PTC) Emerges as a Peter Lynch-Style GARP Investment

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 the Fidelity Magellan Fund supported a "growth at a reasonable price" (GARP) idea, concentrating on companies with lasting earnings growth, good financial condition, and prices that do not overvalue that future promise. His strategy, explained in One Up on Wall Street, stresses fundamental study over guessing market movements, looking for businesses that are easy to understand, make money, and are available at a logical price compared to their growth path. A filter using Lynch’s main rules lately pointed to PTC Inc (NASDAQ:PTC) as a possible option for more examination.

Match with Lynch's Growth & Price Filters

Peter Lynch valued companies increasing earnings at a good, lasting pace, not too slow, but not so quick it was probably a short spike. He also required that investors not pay too much for that growth, using the PEG ratio as an important price measure. PTC’s financial numbers display a good match with these ideas.

• Lasting Earnings Growth: Lynch’s filter usually wants a 5-year average EPS growth between 15% and 30%. PTC’s EPS has increased at an average yearly rate of 25.59% over the last five years, putting it clearly inside this desired zone. This shows a solid and steady rise in profit, a key part of Lynch’s strategy.
• Logical Price (PEG Ratio): To prevent overpaying, Lynch liked stocks with a Price/Earnings to Growth (PEG) ratio of 1 or lower. PTC’s PEG ratio, using its past five-year growth, is 0.86. This implies the stock’s present price may not completely account for its historical earnings growth rate, a good sign for price-aware growth investors.

Financial Condition and Earnings Power

Lynch was careful about a company’s financial statement and its skill to produce returns on shareholder equity. He chose companies with acceptable debt and high earnings power, which offer a safety buffer and show capable management.

• Cautious Financial Setup: A low Debt-to-Equity ratio was key for Lynch, who often wanted a number below 0.25. PTC’s D/E ratio of 0.31 shows a cautious financial setup paid for mainly by equity instead of debt, lowering money risk.
• High Earnings Power: Lynch looked for companies with a Return on Equity (ROE) above 15%, a mark of good use of investor money. PTC’s ROE of 19.18% easily passes this level.
• Sufficient Short-Term Cash Health: While not the main concern for long-term owners, a Current Ratio above 1 shows a company can pay its near-term bills. PTC’s ratio of 1.12 meets this basic financial condition test.

Broad Fundamental Review

A look at PTC’s full fundamental study report supports the image shown by the Lynch filter. The report gives PTC a total score of 6 out of 10, noting several main positives that fit a long-term, quality-centered investment method.

The company receives very high scores for Earnings Power (9/10) and acceptable scores for Financial Condition (7/10). It has top-tier margins, including a Gross Margin of 83.76% and an Operating Margin of 36.77%, and does very well in return measures like Return on Invested Capital (ROIC). The Price (4/10) is seen as acceptable compared to both its high-grade software industry group and the wider market, with the report stating that its very good earnings power may support its present multiples. The Growth (6/10) story is marked by very strong past results, though experts predict a more measured, but still upward, growth rate in the future.

You can review the complete, itemized look at PTC’s basics in its full analysis report.

Investment Setting and Points to Think About

PTC works in the industrial software area, offering digital tools for product design, production, and service. This "digital thread" technology handles difficult, actual business issues, the kind of necessary, if not always exciting, business that Lynch liked. For the GARP investor, PTC shows an example of a company with a confirmed history of earnings growth, high earnings power, and a strong financial statement, available at a price that seems logical when considering its past growth.

It is key to remember, as Lynch would state, that a filter is only a first step for more detailed study. Interested investors should study the company’s competitive place, the durability of its growth reasons in the changing IoT and CAD/PLM fields, and management’s plan for using its money.

Find Other Possible Options

PTC was found using a particular group of filters made to copy Peter Lynch’s strategy. If this method fits your investment thinking, you can locate other companies that meet these same rules by using the Peter Lynch Strategy stock filter.

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Disclaimer: This article is for information and learning only and is not a suggestion to buy, sell, or keep any security. The study is based on given data and a particular investment strategy filter. All investing has risk, including the chance of losing the original money. Investors should do their own complete study and think about their personal money situation and risk comfort before making any investment choices.