REV Group Inc (NYSE:REVG): A Peter Lynch-Style GARP Investment Opportunity

In the world of long-term investing, few strategies have shown as much practical success as the approach supported by Peter Lynch during his time managing Fidelity’s Magellan Fund. Lynch’s philosophy focuses on finding companies with good growth potential that are trading at fair prices, often called the GARP (Growth at a Reasonable Price) method. He highlighted lasting earnings growth, good financial health, and clear business models, preferring firms that individual investors might come across in their everyday lives. This method stays away from speculative trends and market timing, concentrating instead on basic strength and longevity.

One company that recently appeared through a screen built on Lynch’s standards is REV Group Inc (NYSE:REVG), a designer and maker of specialty and recreational vehicles. Based in Wisconsin, the company works through two primary segments: Specialty Vehicles, which includes fire apparatus and ambulances, and Recreational Vehicles, providing a selection of motorized and towable RVs. This is precisely the kind of business Lynch might like, functional, necessary in certain areas, and fairly simple for investors to grasp.

When looking at REVG next to Lynch’s main investment filters, several measures are notable as especially good matches:

• Earnings Per Share Growth: Lynch wanted companies with EPS growth between 15% and 30% over a five-year span to confirm growth was solid but maintainable. REVG’s EPS has increased at an average yearly rate of 29.36% over the past five years, putting it at the top of Lynch’s chosen range and showing a strong, yet controlled, growth path.
• PEG Ratio: Important to Lynch’s valuation technique was the PEG ratio, which modifies the P/E ratio for growth and aids in spotting fairly priced growth stocks. REVG’s PEG ratio of 0.88, calculated from past growth, is far under Lynch’s top limit of 1, implying the market might be pricing its growth possibility low compared to earnings.
• Debt-to-Equity Ratio: Financial strength was critical for Lynch, who liked companies with little debt. REVG’s debt-to-equity ratio of 0.36 is not only under the screen’s limit of 0.6 but also matches Lynch’s stricter liking for ratios under 0.25, showing a careful capital structure.
• Return on Equity: Lynch looked for companies that effectively produce profits from shareholder equity, frequently aiming for an ROE above 15%. REVG’s ROE of 27.08% greatly passes this mark, pointing to excellent profitability and efficient use of investor money.
• Current Ratio: To make sure of short-term financial security, Lynch included a current ratio above 1. REVG’s current ratio of 1.66 shows enough cash to cover immediate debts, although it is important to note that other cash measures display some softness compared to industry competitors.

Apart from these main measures, a look at REVG’s full fundamental report gives a wider view of its investment profile. The report gives the company a total score of 6 out of 10, showing a varied but mostly positive evaluation. Profitability is a definite positive, with high marks for return on equity and invested capital, even though gross margins are below industry averages. Financial health is acceptable, with good solvency measures balanced by lower liquidity signs. Valuation seems fair, with a forward P/E that implies a lower price than both the S&P 500 and industry averages, particularly when growth forecasts are thought about. Growth patterns show some variation, revenue has been unchanged or falling in the past, but earnings have grown quickly, and analysts predict a rise in both revenue and EPS growth in the next few years.

For investors curious about finding other companies that fit Peter Lynch’s investment standards, you can view the complete screen here, which provides a changing list of stocks that pass these filters.

REV Group presents a good case for more study by investors who agree with Lynch’s ideas, particularly those looking for expanding, financially stable businesses selling for a fair price. Its good earnings growth, high profitability, and acceptable debt levels are clear benefits, though investors should note its cash position and margin details. As with any investment, careful examination and a long-term view are important.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.