Urban Outfitters Inc (NASDAQ:URBN) Matches Peter Lynch's GARP Investment Criteria

For long-term investors aiming to build wealth through the stock market, few methods have shown to be as lasting as the one described by legendary fund manager Peter Lynch. His method, explained in his book One Up on Wall Street, centers on finding companies with good, maintainable growth that are available at fair prices, a thinking often grouped as Growth at a Reasonable Price (GARP). Lynch supported putting money into comprehensible businesses with good financials, steady earnings, and controlled debt, while staying away from the excitement of overly quick growth that is hard to keep up. A stock filter built on his ideas can help find companies that match this careful structure.

One firm that recently appeared using such a filter is Urban Outfitters Inc (NASDAQ:URBN). The retailer, recognized for its Anthropologie, Free People, and namesake Urban Outfitters brands, seems to match several important Lynch measures, indicating it may deserve more examination from investors concentrated on long-term, quality growth.

Match with Peter Lynch Measures

Peter Lynch’s method stresses particular, measurable numbers to sort for companies with healthy growth, good finances, and appealing prices. Urban Outfitters fits a number of these central filtering points:

• Maintainable Earnings Growth: Lynch liked companies with a steady earnings growth history, but was cautious of growth rates over 30% as they are frequently not maintainable. URBN’s 5-year average EPS growth of 15.5% sits well within Lynch’s aimed range of 15% to 30%, showing a past of good, controlled increase.
• Fair Price Compared to Growth: A key part of the GARP method is the PEG ratio (Price/Earnings to Growth), which Lynch stated should be at or under 1. This shows the stock price is not too high for its growth path. With a PEG ratio of about 0.98, URBN’s price looks fair when its past earnings growth is included.
• Good Financial Condition: Lynch gave priority to companies with strong balance sheets. URBN does well here, having a Debt/Equity ratio of 0.0, meaning it functions with no interest-bearing debt. This goes beyond Lynch’s liking for a ratio under 0.6 and even his tighter goal of 0.25. Also, its Current Ratio of 1.48 shows enough short-term cash to cover its needs.
• High Earnings Ability: A high Return on Equity (ROE) shows good use of shareholder money. Lynch wanted an ROE above 15%. URBN’s ROE of 18.42% is above this level, reflecting good management efficiency and earnings ability.

Basic Condition Review

Outside the specific filter points, a wider view of Urban Outfitters’ basic profile supports the idea. According to a detailed basic examination, the company gets a total score of 7 out of 10, placing it well within the competitive specialty retail field.

The report points out two especially strong areas:

• Earnings Ability: URBN gets a high earnings ability score (8/10), pushed by field-leading numbers like Return on Assets (10.09%) and Operating Margin (9.54%). Its earnings margins have shown good directions in recent years.
• Financial Condition: The company gets a nearly full health score (9/10). The lack of debt is a big reason, leading to a strong Altman-Z score of 4.49, which shows very little chance of bankruptcy. The report states the company has been lowering its share count, a sign of management belief that matches Lynch’s liking for share buyback plans.

The price and growth scores are more average but still positive. The stock sells at a P/E ratio of 15.26, which is seen as fair on its own and is less expensive than most of its field competitors and the wider S&P 500. While future earnings growth is forecast to be positive, it is thought to slow a bit from its past speed, a point for investors to note in their study.

Is URBN a "Know-It" Stock?

A less measurable but vital part of Lynch’s thinking is investing in what you know and grasp. He thought the best investment ideas often come from seeing products and services in daily life. For many shoppers, Urban Outfitters’ group of brands, from Anthropologie’s home items to Free People’s clothing, may be known. This familiarity lets an investor begin their study with a simple understanding of the company’s customer attraction and market place, a basic step Lynch always advised before looking into the numbers.

A Beginning Place for More Study

It is vital to recall that a filter gives a beginning list, not a purchase list. Urban Outfitters’ appearance on the Peter Lynch filter suggests it has the basic qualities Lynch liked: maintainable growth, a strong balance sheet, high earnings ability, and a fair price. This makes it an interesting option for more careful checking by GARP-focused investors.

For investors wanting to look at other companies that fit this careful method, you can see the full Peter Lynch filter results here.

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Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or a deal or request to buy or sell any securities. The information shown is based on given data and should not be the only reason for any investment choice. Investors should do their own complete study and talk with a qualified financial advisor before making any investment.