QUALYS INC (NASDAQ:QLYS) Passes Peter Lynch Stock Screen with Strong Growth and Zero Debt

The investment philosophy created by Peter Lynch focuses on finding companies with good growth potential that are available at fair prices, a method often called Growth at a Reasonable Price (GARP). Lynch's system, explained in his book One Up on Wall Street, centers on lasting earnings growth, sound financial condition, and good valuation measures, particularly using the PEG ratio to locate companies that are not priced too high compared to their growth. This method steers clear of the most extreme growth stocks and deep value investments, looking instead for businesses that can provide steady, long-term results.

Qualys Inc. (NASDAQ:QLYS), a company that offers cloud security and compliance solutions, was recently identified by a stock screen using Lynch’s standards. The company’s nature as a cloud-based security platform fits with Lynch’s idea of investing in easy-to-understand businesses that offer necessary services, here, assisting organizations with their IT security and compliance requirements via a software-as-a-service model.

Meeting the Lynch Criteria

The screen uses a number of specific filters to find appropriate companies, and Qualys satisfies these important measures:

• Sustainable Earnings Growth: Lynch preferred companies with solid, but not extreme, earnings growth to confirm long-term viability. Qualys displays a 5-year EPS growth rate of 21.24%, which fits well within the screen's desired range of 15% to 30%. This points to a strong and controlled growth path that is not excessive.
• Fair Valuation via PEG Ratio: A fundamental part of the Lynch method is the PEG ratio, which evaluates the price-to-earnings ratio against earnings growth. A number below 1 indicates a stock might be priced low considering its growth. Qualys has a PEG ratio of 0.95, satisfying Lynch's condition and suggesting that its growth potential is not completely represented in its present share price.
• Outstanding Profitability and Financial Health: The screen requires a high Return on Equity (ROE) and a solid balance sheet. Qualys performs very well here, with an ROE of 36.41%, much higher than the 15% minimum, showing effective use of shareholder equity. Additionally, the company has zero debt, leading to a Debt/Equity ratio of 0, which goes beyond Lynch's cautious standard and offers notable financial safety.
• Sufficient Short-Term Liquidity: The need for a Current Ratio above 1 confirms a company can cover its short-term liabilities. Qualys has a Current Ratio of 1.30, showing a good liquidity situation and matching this financial condition check.

Fundamental Analysis Overview

A wider fundamental review of Qualys supports the results from the Lynch-based screen. The company gets a solid total rating of 7 out of 10, with very good grades in profitability (9/10) and financial health (9/10). Its profit margins are excellent for the software industry, and its total absence of debt gives it a very strong financial standing. While its valuation is viewed as acceptable instead of very low, its high profitability is considered to support the current price levels. The primary point to watch is an expected reduction in future growth relative to its past performance, a detail long-term investors should observe. A complete analysis is provided in the full fundamental report.

Alignment with Long-Term GARP Investing

For investors looking for growth at a fair price, Qualys offers a strong argument. It represents the Lynch idea of a clear business in a necessary field, cybersecurity, that is expanding at a maintainable rate. Its high profitability, excellent balance sheet, and fair valuation when considered with growth (PEG < 1) offer a degree of safety. These traits are exactly what GARP investors seek: a good company where you are not paying too much for its future earnings, thus setting it up for possible long-term gains.

The Peter Lynch screen is a useful initial step for finding companies that match a structured GARP plan. For investors wanting to research other companies that meet these standards, the screen is ready to use, giving a changing list of possible investment options. You can locate and adjust the screen here: Peter Lynch Strategy Stock Screen.

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 opinions expressed are based on analysis of publicly available data and the described investment strategy. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.