The investment philosophy of legendary fund manager Peter Lynch focuses on finding well-run, growing companies trading at sensible prices, a strategy often called Growth at a Reasonable Price (GARP). Lynch supported a long-term, buy-and-hold method, concentrating on businesses with lasting earnings growth, good profitability, sound financial condition, and valuations that do not overpay for future potential. His approach stresses fundamental analysis instead of market timing, looking for companies an investor can comprehend and own with assurance for years.
One company that recently appeared from a screen using Lynch's main standards is TRIP.COM GROUP LTD-ADR (NASDAQ:TCOM), a top global one-stop travel platform. As the travel industry keeps recovering and changing, TCOM offers an interesting case for investors following the GARP philosophy.
Alignment with Peter Lynch's Growth Standards
A central part of Lynch's strategy is finding companies with a steady and maintainable history of earnings growth. He preferred annual EPS growth between 15% and 30%, as growth above that rate is often not lasting. TCOM shows a good fit here.
- EPS Growth (5-Year): 21.05%. This puts TCOM directly within Lynch's desired range, showing a solid and consistent increase in profitability over a long time. The company has grown at a speed Lynch would see as sustainable.
Valuation: The "Reasonable Price" in GARP
Lynch was careful about valuation, famously using the PEG ratio (Price/Earnings to Growth) to find stocks where the price did not exaggerate the growth potential. A PEG ratio of 1 or less was a key measure.
- PEG Ratio (5-Year): 0.43. This is a notable figure. With a PEG well below 1, it implies the market is pricing TCOM's shares cautiously compared to its past earnings growth. This forms the "reasonable price" chance Lynch looked for, where investors are not paying extra for past results.
Financial Condition and Profitability
Lynch needed companies to be financially strong, with controlled debt and good returns on shareholder equity. This makes sure the business can endure slow periods and uses its capital effectively to create earnings.
- Debt-to-Equity Ratio: 0.07. This is a very low amount of debt, much lower than Lynch's preferred limit of 0.6 and even his tighter goal of 0.25. It shows a balance sheet funded mainly by equity, lowering financial risk.
- Current Ratio: 1.48. This meets Lynch's need for a ratio of at least 1, indicating the company has enough current assets to meet its short-term debts, a sign of capable liquidity management.
- Return on Equity (ROE): 18.53%. This easily passes Lynch's 15% minimum, showing that TCOM is highly profitable and effective in creating returns from its equity.
Fundamental Analysis Summary
A look at TCOM's detailed fundamental report gives a wider view that backs the screening outcomes. The report gives TCOM a total score of 5 out of 10, noting it is in the Hotels, Restaurants & Leisure industry.
The analysis points out several positive points:
- Outstanding Profitability Margins: The company has industry-best profit and operating margins.
- Good Growth Path: Both revenue and earnings have shown notable growth lately, with optimistic forecasts for coming years.
- Sensible Valuation: Standard P/E ratios are seen as very sensible compared to both industry competitors and the wider S&P 500.
The report also notes areas for investor attention, mainly about financial condition, where measures like the link between Return on Invested Capital and cost of capital are mentioned. This highlights the value of the Lynch screen's health filters, which TCOM meets, and the need for more investigation.
A Candidate for More Study
For investors using a Peter Lynch-inspired GARP strategy, TRIP.COM GROUP LTD-ADR shows a profile that deserves more examination. It displays the characteristics Lynch liked: maintainable historical growth, a valuation that seems to discount that growth, a very strong balance sheet with little debt, and high profitability. As with any investment, this screening result is a first step. Lynch himself emphasized the need to understand the business, in this case, the workings of the global online travel industry, competitive forces, and local economic factors, before making a long-term investment.
Interested in finding other companies that fit this disciplined method? You can find more possible choices using the Peter Lynch Strategy stock screener.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. The analysis is based on predefined screening criteria and provided data. Investors should conduct their own thorough research and consider their individual financial circumstances and risk tolerance before making any investment decisions. Past performance is not indicative of future results.
