Why UNITED THERAPEUTICS CORP (NASDAQ:UTHR) 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 solid fundamentals, profitability, and steady earnings growth, steering clear of overly speculative or heavily indebted firms. Lynch’s criteria usually look for companies with a 5-year EPS growth between 15% and 30%, a PEG ratio under 1, a debt-to-equity ratio below 0.6, strong liquidity (current ratio ≥ 1), and a return on equity (ROE) above 15%. These measures help identify businesses that are financially stable, well-run, and priced fairly relative to their growth prospects.

Why UNITED THERAPEUTICS CORP (NASDAQ:UTHR) Matches the Lynch Criteria

1. Steady Earnings Growth
   UNITED THERAPEUTICS CORP (UTHR) has achieved a 5-year average EPS growth of 16.88%, fitting within Lynch’s recommended 15–30% range. This points to consistent, sustainable growth rather than erratic surges. The company’s projected forward EPS growth of 10.77% suggests ongoing progress, matching Lynch’s emphasis on reliability over volatility.

2. Fair Valuation Based on PEG Ratio
   The PEG ratio (price/earnings-to-growth) is central to Lynch’s strategy, ensuring investors pay a fair price for growth. UTHR’s PEG of 0.70—below the ideal limit of 1—indicates the stock is priced attractively compared to its earnings growth. This aligns with Lynch’s view that even high-growth companies should trade at sensible valuations.

3. Solid Financial Position
   Lynch favored companies with low debt and strong liquidity. UTHR performs well here, with no debt (Debt/Equity = 0) and a current ratio of 7.26, well above the minimum of 1. This financial strength lowers risk and supports long-term stability, a priority in Lynch’s strategy.

4. High Profitability
   UTHR’s ROE of 17.31% exceeds Lynch’s 15% target, showing effective use of shareholder funds. Its operating margin (50.06%) and profit margin (40.36%) rank among the top in the biotechnology sector, reflecting strong operational performance. Lynch preferred companies with lasting competitive edges, and UTHR’s margins indicate pricing strength and cost efficiency.

Additional Strengths

Our full fundamental analysis scores UTHR 8/10, emphasizing its profitability and financial stability. Key points:

• Valuation: With a P/E of 11.90 (lower than 96% of biotech peers) and a forward P/E of 10.48, UTHR is priced modestly despite its growth.
• Cash Flow: Consistent positive operating cash flows over the past five years show its ability to support growth without heavy borrowing.
• Industry Role: Leading margins and a focus on pulmonary arterial hypertension (PAH) treatments create a stable niche, fitting Lynch’s preference for essential, less flashy businesses.

Points to Consider

While UTHR meets Lynch’s key standards, investors should note:

• Revenue growth is forecast to slow to 7.16% yearly, below historical rates.
• The biotech sector involves regulatory and pipeline risks, though UTHR’s established products reduce some uncertainty.

Find Similar Opportunities

For those looking for comparable stocks, our Peter Lynch Strategy screener provides a list of stocks that follow these principles.

Disclaimer: This analysis is not investment advice. Conduct your own research or consult a financial advisor before making decisions.