Schlumberger Ltd (NYSE:SLB) Fits Peter Lynch’s Growth at a Reasonable Price (GARP) Strategy

Peter Lynch’s investment strategy, as described in One Up on Wall Street, centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. The approach highlights fundamental strength, earnings potential, and controlled debt levels while steering clear of overly aggressive growth paths. Stocks that fit these standards usually show reliable earnings growth, fair price-to-earnings ratios compared to growth (PEG), and stable financial statements.

Schlumberger Ltd (NYSE:SLB) stands out as a potential match for this model. The oilfield services company, active in digital solutions, reservoir management, well construction, and production systems, displays multiple traits Lynch valued.

Key Metrics Matching Lynch’s Approach

1. Earnings Growth and PEG Ratio

   • Lynch preferred firms with steady but not extreme earnings growth. Schlumberger’s 5-year EPS growth of 18.3% fits his suggested 15–30% range, pointing to balanced progress.
   • The PEG ratio of 0.55 (based on past growth) indicates the stock may be undervalued relative to its earnings growth, a key feature of Lynch’s strategy. A PEG under 1 implies the stock is priced well for its growth path.

2. Profitability and Return on Equity (ROE)

   • Lynch looked for high ROE as a sign of efficient capital use. Schlumberger’s ROE of 20.2% ranks above 85% of its peers in the energy equipment sector, showing strong earnings.
   • The company’s Return on Invested Capital (ROIC) of 14.2% further confirms smart capital use, surpassing 91% of industry rivals.

3. Financial Health and Debt Management

   • A Debt-to-Equity ratio of 0.54 aligns with Lynch’s preference for firms relying more on equity than debt (though he favored ratios below 0.25). This suggests reasonable borrowing, with measures like a Debt/FCF ratio of 2.85 indicating manageable debt.
   • The Current Ratio of 1.31 meets Lynch’s minimum requirement of 1, showing enough liquidity to handle short-term debts.

4. Valuation

   • Schlumberger trades at a P/E of 10.05, below both the industry average (27.3) and the S&P 500 (27.0), fitting Lynch’s focus on fair pricing.

Fundamental Overview

Schlumberger’s fundamental report notes its strengths in earnings and efficiency, though with slight concerns in liquidity (such as a Quick Ratio under 1). The company’s valuation seems reasonable, with growth figures supporting its place in a GARP-focused portfolio.

Why These Standards Are Important

Lynch’s method avoids risky growth by prioritizing steady progress, earnings strength, and financial stability. Schlumberger’s metrics—especially its PEG, ROE, and controlled debt—reflect these principles, making it a possible choice for long-term investors looking for reliable growth without overpaying.

For those interested in finding similar stocks, the Peter Lynch Strategy screener provides additional filtered results.

Disclaimer: This analysis is not investment advice. Investors should perform their own research or seek guidance from a financial advisor before making decisions.