QFIN HOLDINGS INC-ADR (NASDAQ:QFIN) Screens as a Top Peter Lynch-Style GARP Stock

The investment philosophy of Peter Lynch, detailed in his seminal work One Up on Wall Street, centers on identifying companies that exhibit sustainable growth while trading at reasonable valuations. This approach, often categorized as Growth at a Reasonable Price (GARP), avoids the extremes of speculative growth chasing and deep-value turnarounds. Instead, it seeks financially sound businesses with a proven track record of earnings expansion, manageable debt, and strong profitability, all available at a price that does not overpay for that future potential. The strategy uses a disciplined screening process to isolate such candidates, and one company that recently surfaced through this filter is Qifu Technology Inc (NASDAQ:QFIN), a Chinese fintech holding company.

A closer examination of QFIN reveals a strong alignment with the core tenets of the Lynch methodology. The strategy prioritizes earnings growth that is solid yet sustainable, typically targeting an annualized rate between 15% and 30%. Qifu Technology’s five-year earnings per share (EPS) growth of 19.96% sits comfortably within this ideal range, indicating a business that has successfully expanded without overheating. This consistent growth is a primary driver for long-term stock appreciation, making it a cornerstone of the screening process.

Perhaps the most critical Lynch metric is the PEG ratio, which adjusts the common price-to-earnings (P/E) ratio for the company's growth rate. A PEG ratio at or below 1.0 suggests the market may be undervaluing the company's growth trajectory. QFIN’s PEG ratio, calculated at a very low 0.20 based on its historical growth, signals a significant disconnect between its market price and its proven earnings power. This is a key indicator for GARP investors, as it implies the stock offers a substantial margin of safety relative to its growth.

Beyond growth and valuation, Lynch emphasized financial health to ensure a company can endure economic downturns and fund its own expansion. QFIN performs well in this area, with a debt-to-equity ratio of 0.27, which is not only well below the screen's threshold of 0.6 but also aligns with Lynch's personal preference for a ratio under 0.25. This indicates a conservative capital structure funded primarily by equity, minimizing risk from interest obligations. Furthermore, a current ratio of 3.08 demonstrates high short-term liquidity, far exceeding the requirement of 1.0 and showing the company has ample resources to meet its immediate liabilities.

Profitability is the final pillar, measured by return on equity (ROE). Lynch sought companies generating an ROE above 15%, a sign of efficient use of shareholder capital. QFIN’s ROE of 29.92% is very high, indicating that for every dollar of equity, the company generates nearly thirty cents in profit. This level of efficiency is a hallmark of a high-quality business and a key reason it stands out in a screen designed to find them.

A high-level summary of the full fundamental analysis report reinforces these screening results. The report awards QFIN an overall rating of 8 out of 10, praising its "outstanding health and profitability ratings" that place it with the best in the Consumer Finance industry. It is described as a company with a "solid base" that scores well on growth and is "valued quite cheap," making it "very considerable for value and quality investing." The analysis specifically highlights its top-tier profit margins, excellent solvency, and liquidity metrics, providing a full qualitative backing to the quantitative screen.

For investors interested in discovering other companies that fit this disciplined GARP approach, the Peter Lynch strategy screen is available here, offering a dynamic list of candidates for further research.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The analysis is based on provided data and a specific investment strategy; it is not a substitute for your own thorough research and financial due diligence.