X Financial-ADR (NYSE:XYF) Fits Peter Lynch’s Growth at a Reasonable Price (GARP) Strategy

Peter Lynch’s investment strategy, described in One Up on Wall Street, centers on finding companies with steady growth at fair prices, often called the Growth at a Reasonable Price (GARP) method. The approach prioritizes solid fundamentals, consistent earnings, and controlled debt, while steering clear of overly high growth rates that may indicate future risks. Stocks meeting these standards are usually set for long-term gains without taking on too much risk.

X Financial-ADR (NYSE:XYF) appears to align with Lynch’s criteria, based on these important metrics:

Valuation and Growth Balance

• PEG Ratio (Past 5 Years): 0.17 – A PEG ratio under 1 implies the stock is priced below its historical earnings growth. Lynch liked such companies, as they provide growth without high costs.
• EPS Growth (5-Year Avg.): 16.75% – This fits Lynch’s preferred range of 15-30%, showing steady but not excessive growth.
• Price-to-Earnings (P/E): 2.84 – Much lower than the industry (15.70) and S&P 500 (26.54), highlighting the stock’s low valuation.

Financial Health and Profitability

• Debt-to-Equity Ratio: 0.34 – Below Lynch’s suggested limit of 0.6 (and his stricter 0.25 target), signaling careful debt management.
• Return on Equity (ROE): 21.99% – Above Lynch’s 15% minimum, showing effective use of investor funds.
• Current Ratio: 1.50 – Indicates enough liquidity to handle short-term debts, matching Lynch’s focus on stability.

Additional Strengths

• High Operating Margin (62.29%) and ROIC (32.59%) – These figures, detailed in the fundamental analysis report, rank XYF among the best in its sector for earnings and capital use.
• Positive Cash Flow and Rising Margins – Reliable cash flow and growing margins point to strong operations, a key factor for Lynch.

While XYF’s low institutional ownership and limited dividend history may concern some investors, these traits match Lynch’s interest in lesser-known firms with room for growth. The lack of analyst coverage could also suggest the stock is undervalued, offering potential gains as its strengths become more visible.

Fundamental Summary

XYF’s fundamental report gives it a moderate score of 5/10, praising strong earnings and fair pricing but noting slight worries about financial stability. The company leads its peers in areas like ROIC and operating margins, though its growth path lacks future projections—a typical issue for smaller, less-followed stocks.

For investors looking for more stocks that fit the Peter Lynch approach, check the full screen results here.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence or consult a financial advisor before making decisions.