DR. REDDY'S LABORATORIES-ADR (NYSE:RDY) – A GARP Candidate Worth Watching

DR. REDDY'S LABORATORIES-ADR (NYSE:RDY) surfaced in our Peter Lynch-inspired stock screen, meeting criteria for long-term growth at a reasonable price (GARP). The company combines steady earnings growth, strong profitability, and a conservative financial structure, making it an interesting candidate for investors seeking sustainable returns.

Key Strengths

• Earnings Growth: RDY has delivered a 5-year average EPS growth of 23.6%, comfortably within Lynch’s preferred range of 15-30%. This suggests sustainable expansion rather than overheated growth.
• Attractive Valuation: With a PEG ratio (5Y) of 0.79, the stock compensates for its growth, trading below the Lynch benchmark of PEG ≤ 1.
• Strong Profitability: A return on equity (ROE) of 16.8% reflects efficient use of shareholder capital, well above the 15% minimum Lynch favored.
• Healthy Balance Sheet: A debt-to-equity ratio of 0.02 indicates minimal reliance on borrowing, aligning with Lynch’s preference for financially stable companies.
• Liquidity: The current ratio of 1.92 shows sufficient short-term asset coverage, though it trails some industry peers.

Fundamental Snapshot

RDY’s fundamental analysis highlights a robust profile:

• Profitability: High margins (17.3% net, 21.3% operating) and industry-leading returns (ROIC: 14.5%) underscore operational efficiency.
• Valuation: While the P/E of 18.65 appears elevated, it’s cheaper than 83.5% of pharmaceutical peers and the S&P 500 average (27.46).
• Growth Concerns: Expected near-term EPS declines (-2.1%) warrant monitoring, though revenue is projected to grow at 5.5% annually.

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Disclaimer

This is not investing advice. Always conduct your own research before making investment decisions.