The investment philosophy of legendary fund manager Peter Lynch focuses on finding companies with solid, lasting growth that are available at fair prices. Often called a "growth at a reasonable price" (GARP) method, Lynch’s process selects for profitable, financially sound businesses that are increasing earnings at a consistent rate, not too low, but not so high that it cannot continue. The aim is to create a lasting portfolio of these companies, using fundamental analysis and mostly avoiding short-term market fluctuations. A stock screener based on Lynch’s ideas searches for particular measures: a five-year earnings per share (EPS) increase between 15% and 30%, a price/earnings to growth (PEG) ratio of 1 or less, a high return on equity (ROE), little debt, and good near-term financial condition.
One company that recently appeared from this sort of filter is Qualys Inc (NASDAQ:QLYS), a supplier of cloud-based security and compliance tools. The company’s presence on the list implies its financial numbers match the Lynch approach closely, marking it as a prospect deserving of more study for investors looking for lasting growth without excessive cost.
Match with Main Lynch Standards
A more detailed look at Qualys’s important numbers shows why it meets the first filter. The Lynch method stresses not only growth, but lasting growth combined with fair pricing.
- Earnings Increase (15% < EPS Growth < 30%): Qualys has a five-year EPS increase rate of 21.2%. This sits directly within Lynch’s desired range, showing a record of solid, but not overly rapid, enlargement. Lynch preferred this span because very high increase rates are frequently hard to keep up, while reliable double-digit increase can build significantly over years.
- Price Check (PEG Ratio ≤ 1): The PEG ratio is a central part of the GARP method, as it frames a company’s price-to-earnings (P/E) multiple next to its increase rate. A ratio of 1 or lower indicates the market may not be paying too much for that increase. Qualys’s PEG ratio, calculated from its past five-year increase, is 0.91, satisfying Lynch’s rule for fair pricing.
- Earnings Generation (ROE > 15%): Return on equity calculates how well a company produces earnings from shareholder equity. Qualys’s ROE of 35.7% is outstanding, well above the 15% threshold. For Lynch, a high ROE indicated a lasting competitive edge and capable leadership, important qualities for a long-term investment.
- Financial Soundness (Debt/Equity < 0.6, Current Ratio ≥ 1): Lynch required strong balance sheets to survive economic challenges. Qualys performs well here with a debt-to-equity ratio of 0.0, meaning it functions with no interest-bearing debt. Its current ratio of 1.38 also shows enough cash to meet near-term responsibilities, offering a buffer.
Basic Soundness and Character
Beyond the filter’s main criteria, a wider basic study supports the qualitative argument for Qualys. According to its detailed basic report, the company receives a high total score of 7 out of 10, with special force in earnings generation and financial soundness.
The report notes outstanding margins, including a profit margin close to 29% and an operating margin over 32%, placing it with the best in the active software field. Its return on invested capital (ROIC) of nearly 30% further highlights unusual efficiency in using capital. The soundness score is supported by the clean, debt-free balance sheet and steady decrease in share count, another element Lynch saw as positive.
While pricing measures show a varied image, its P/E ratio seems high alone but lower compared to field competitors, the strong earnings generation and increase profile help explain its market price within the GARP structure.
The Company Behind the Data
The number filters are a first step; Lynch always highlighted the need to know the business. Qualys works in the vital and growing area of cybersecurity, providing its platform through a software-as-a-service (SaaS) model. This generates reliable, repeating subscription income. The company’s attention on cloud-native security and compliance automation meets key demands for current organizations, a field with a long path for increase. The "ordinary" but vital character of its services, protecting IT resources and information, is exactly the sort of clear, needed business Lynch liked.
A Prospect for More Study
No filter is a instruction to buy, but a first step for careful examination. Qualys Inc shows a strong profile for investors following the Peter Lynch philosophy: a profitable company in an increasing field, showing good historical increase at a price moderated by that increase, and supported by a very strong balance sheet. It represents the idea of finding good increase available at a fair price.
For investors wanting to review other companies that match this structured method, the complete Peter Lynch Strategy filter can be found here, where you can see and study the present list of matching securities.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer to buy or sell any security. Investing holds risk, including the possible loss of original funds. You should perform your own study and talk with a registered financial consultant before making any investment choices.
