XPEL INC (NASDAQ:XPEL) Passes Peter Lynch Screen with Strong Growth and Sound Finances

XPEL INC (NASDAQ:XPEL) has been identified by a screening process based on Peter Lynch's investment methodology, which focuses on finding companies with maintainable growth paths trading at sensible prices. This method, explained in Lynch's book One Up on Wall Street, centers on fundamental analysis instead of market timing, looking for businesses with sound financial condition, steady profitability, and earnings growth that is significant but also maintainable over a long period. The method favors companies that are not financially overstretched and have competitive strengths in their sectors, making them appropriate for long-term, buy-and-hold investment portfolios.

Growth and Valuation Alignment

A main part of the Lynch method is judging if a company's growth is both solid and maintainable, while making sure the stock price is not too high compared to that growth. This is mainly evaluated using the Price/Earnings to Growth (PEG) ratio, which connects the stock's price to its earnings growth rate. XPEL shows good agreement with these ideas:

• Maintainable Earnings Growth: The company has reached an average yearly earnings per share (EPS) growth of 26.40% over the last five years. This number is inside Lynch's favored span of 15% to 30%, showing a strong but possibly maintainable growth speed that steers clear of the warning signs linked with very fast growth.
• Sensible Valuation via PEG: XPEL's PEG ratio, calculated from past five-year growth, is 0.74. A PEG ratio under 1.00 is a fundamental part of the Lynch screen, hinting that the stock could be priced low considering its growth history. This measure is important as it helps investors prevent paying too much for growth, a frequent mistake in growth investing.

Financial Health and Profitability

Lynch required investing in companies with firm financial bases to endure economic ups and downs. This involves looking at balance sheet soundness and profitability measures, areas where XPEL performs well.

• Outstanding Profitability: The company's Return on Equity (ROE) is 19.03%, greatly exceeding the 15% minimum level set in the screen. A high ROE shows that management is using shareholder equity effectively to produce profits, a main sign of a good business.
• Sound Liquidity Position: XPEL's Current Ratio is 4.42, well above the requirement of 1.00. This shows a solid ability to cover short-term debts and indicates a buffer against possible financial difficulty.
• Very Low Debt Load: With a Debt-to-Equity ratio close to zero, the company is almost completely funded by equity. This matches well with Lynch's liking for little debt, as it lowers risk and interest costs, adding to more financial steadiness.

Fundamental Analysis Overview

A detailed fundamental analysis of XPEL gives it a sound rating of 7 out of 10, pointing out its quality within the Automobile Components industry. The report emphasizes good scores in both profitability and financial health. Important points include industry-best margins and returns on invested capital, along with a very sound historical revenue growth rate. While the stock's current Price-to-Earnings (P/E) ratio is seen as somewhat high by itself, this is considered alongside the company's high profitability and sound future earnings growth projections. The analysis ends by stating that XPEL offers a firm foundation for growth and quality investment methods.

Summary and Further Research

XPEL offers a strong case for investors looking for growth at a sensible price, as described by the Peter Lynch framework. The company satisfies the method's strict requirements for maintainable earnings growth, appealing valuation when growth is considered, high profitability, and a clean balance sheet. Its sound fundamental rating further backs the idea that it is a capably managed company in a good financial state.

For investors curious about finding other companies that match this structured method, the Peter Lynch Strategy stock screen is accessible to run and gives a changing list of possible investment choices.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The opinions expressed are based on current data and a specific investment methodology. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.