United Therapeutics Corp. (NASDAQ:UTHR) Embodies Peter Lynch's GARP Strategy

In the world of long-term investing, few strategies have shown as much practical success as the approach supported by Peter Lynch. His methodology, detailed in One Up on Wall Street, highlights finding companies with solid growth potential that are trading at sensible valuations, often called Growth at a Reasonable Price (GARP). Lynch’s framework mixes parts of both growth and value investing, concentrating on lasting earnings expansion, sound financial condition, and controllable debt, while avoiding overhyped or overly fast growth that may not be lasting. This thinking guided Lynch to outstanding returns during his time leading the Magellan Fund, and it still provides a structured path for investors to find promising opportunities without following speculative trends.

UNITED THERAPEUTICS CORP (NASDAQ:UTHR) appears as a strong candidate when measured against Lynch’s standards. The company works in the biotechnology field, concentrating on therapies for chronic and life-threatening conditions like pulmonary arterial hypertension. Its product list contains well-known treatments such as Tyvaso and Remodulin, which have not only created a niche but also show the type of steady, clear business model Lynch liked, companies that deliver necessary products and services, even if they are not in the most exciting industries.

Several important measures match closely with Lynch’s investment rules:

• Earnings Per Share Growth: Lynch wanted companies with EPS growth between 15% and 30% over a five-year span to confirm lasting expansion. United Therapeutics reported an EPS growth rate of nearly 16.88% over the past five years, fitting well within this preferred range. This shows a habit of reliable, controllable growth instead of irregular or overheated results.
• PEG Ratio: Key to Lynch’s valuation method is the PEG ratio, which modifies the P/E ratio for growth and should preferably be at or under 1. United Therapeutics has a PEG ratio of about 0.72, suggesting that the stock could be undervalued compared to its growth path. This is precisely the type of sensible pricing Lynch searched for, where investors are not paying too much for future earnings potential.
• Debt Levels: Lynch chose companies with very little debt, often noting a debt-to-equity ratio below 0.6, and preferably under 0.25. United Therapeutics has a debt-to-equity ratio of 0, meaning it works with no debt, which not only meets Lynch’s standards but also highlights outstanding financial steadiness and reduced risk during economic instabilities.
• Liquidity and Profitability: The current ratio of 7.26 greatly passes Lynch’s need of at least 1, showing solid short-term financial condition. At the same time, the return on equity (ROE) of 17.31% goes beyond the 15% limit Lynch used, indicating efficient use of shareholder capital and sound profitability.

These measures are important because they together create a view of a company that is increasing reliably without accepting too much risk or depending on debt, central ideas of Lynch’s strategy. He thought that such companies could build returns over long periods, as their basics push share price growth instead of short-term market feeling.

A high-level look at United Therapeutics’ fundamental report supports this study. The company has an overall fundamental rating of 7 out of 10, with notable scores in profitability (9/10) and financial health (9/10). It does very well in margins, with operating margins over 50% and profit margins above 40%, both placed near the best of its industry. Valuation is also a positive area, with a P/E ratio around 12 that is viewed as inexpensive compared to both industry rivals and the wider S&P 500. Growth measures show solid past performance, though future projections indicate a slowing, something Lynch could see positively, as it matches his liking for lasting instead of explosive growth.

For investors curious about finding other companies that match this disciplined method, more outcomes from the Peter Lynch screen can be found here.

In summary, United Therapeutics stands as a leading example of the kind of stock Peter Lynch could have valued: a company with a clear business focus, solid and lasting growth, excellent balance sheet, and appealing valuation. For long-term investors looking for growth at a sensible price, it provides a mix of quality and value that is more and more uncommon in today’s markets.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consider their financial situation before making any investment decisions.