QFIN Holdings Inc-ADR (NASDAQ:QFIN) Passes Peter Lynch's GARP Investment Screen

The investment philosophy created by Peter Lynch has long been a guide for investors looking to build wealth through a disciplined, long-term method. His approach focuses on finding companies that show lasting growth, trade at sensible prices, and keep sound financial condition. This plan, often called Growth at a Reasonable Price (GARP), avoids the extremes of speculative growth chasing and deep value traps by looking for businesses that are both profitable and carefully managed. A stock screener made using Lynch's ideas can find companies that meet these strict standards, and one such company that recently passed this screen is QFIN Holdings Inc-ADR (NASDAQ:QFIN).

Alignment with Lynch's Main Criteria

A main part of Lynch's plan is that a company's earnings growth should be strong but maintainable, and its price must be sensible compared to that growth. The provided data shows that QFIN Holdings fits closely with these ideas across several important measures.

• Maintainable Earnings Growth: Lynch preferred companies increasing earnings per share (EPS) between 15% and 30% each year, as growth above that is often not maintainable. QFIN reports a five-year EPS growth rate of 19.96%, putting it directly within this wanted range and showing a steady, healthy increase in profitability.
• Appealing Price via PEG Ratio: Maybe the most important Lynch measure is the Price/Earnings to Growth (PEG) ratio, which he said should be 1.0 or less. A low PEG implies the market might be pricing the stock's growth prospects too low. QFIN's PEG ratio of 0.21 is much lower than this level, indicating a possibly attractive price when its growth path is considered.
• Strong Profitability: Lynch searched for high returns on equity (ROE) as a sign of an efficient and profitable company. QFIN's ROE of 30.15% is much higher than the Lynch minimum of 15%, showing a great ability to create profits from shareholder equity.
• Sound Financial Condition: To make sure of strength, Lynch required companies to have very little debt and good cash availability. QFIN's Debt-to-Equity ratio of 0.26 shows a careful capital structure with low use of borrowing, well within Lynch's preferred range. Also, its Current Ratio of 3.48 shows a solid ability to pay short-term bills, giving a good margin of safety.

Fundamental Condition Summary

A detailed fundamental analysis report for QFIN gives the company a high total rating of 8 out of 10, supporting the results from the Lynch-based screen. The report points out a very good profitability picture, with the company doing better than most of its Consumer Finance industry competitors in important areas like Profit Margin (38.67%) and Return on Invested Capital (14.53%). The pricing is also a notable feature, with a very low Price-to-Earnings ratio of 4.11, which is seen as inexpensive compared to both the industry and the wider S&P 500. While future sales growth is expected to slow, the company's financial condition remains good, backed by strong cash and debt payment ratios.

Investment Points for GARP Investors

For investors using a GARP plan, QFIN offers an interesting case. The company works in the credit technology services area in China, helping link borrowers and financial institutions. Its business model has shown it can increase earnings at a steady, double-digit speed while keeping high profitability. The mix of this growth with a very low price, as shown by the tiny PEG ratio, makes a situation that is key to the Lynch idea: finding growth available for a good price. The company's sound balance sheet and high returns give more reason for trust in its operational effectiveness and long-term steadiness.

For investors wanting to find other companies that fit this disciplined method, the Peter Lynch Strategy stock screener gives a changing list of qualifying stocks. This tool allows for more study and portfolio spreading based on these proven standards.

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Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or an offer to buy or sell any securities. Investors should do their own study and talk with a qualified financial advisor before making any investment choices.