X FINANCIAL-ADR (NYSE:XYF): A Peter Lynch-Style GARP Investment

Investment methods that mix parts of both growth and value investing often interest investors looking for lasting returns without paying too much for future possibility. One well-known example is the system made popular by Peter Lynch, which centers on finding companies with good, but not extreme, growth rates that are available at fair prices. This method, often called Growth at a Reasonable Price (GARP), stresses fundamental soundness, earnings power, and a plain understanding of the company. By using a filter built on Lynch's rules, we can find companies that show these traits, such as X Financial-ADR (NYSE:XYF).

Meeting the Lynch Criteria

The Peter Lynch screen is constructed on a few main financial measures intended to find companies with maintainable growth, sound financial condition, and appealing prices. X Financial seems to match these ideas closely according to the given information.

• Maintainable Earnings Growth: A fundamental part of the Lynch system is earnings per share (EPS) growth that is strong but maintainable, usually from 15% to 30% each year over a five-year span. XYF reports a five-year EPS growth rate of 16.75%, putting it directly inside this preferred span. This shows a past of steady increase without the warning sign of very fast growth that might be hard to continue.
• Appealing Price via PEG Ratio: Lynch was known for using the Price/Earnings to Growth (PEG) ratio to locate fairly priced growth stocks, liking a value of 1 or below. XYF's PEG ratio, figured using its past five-year growth, is very low at about 0.076. This implies the market could be greatly under-pricing the company's past growth path.
• Good Earnings Power (ROE): A lowest Return on Equity (ROE) of 15% is needed to make sure the company is effectively creating profits from shareholder money. XYF's ROE of 22.63% easily passes this limit, indicating good management effectiveness and a high-grade business operation.
• Sound Financial Condition: The screen requires a Debt-to-Equity ratio under 0.6 to make sure the company is not too dependent on borrowed money. XYF's ratio of 0.41 shows a careful financial setup with a good mix between debt and equity funding. Also, a Current Ratio over 1 is needed to confirm immediate payment ability, a point XYF meets with a ratio of 1.59.

Fundamental Analysis Overview

A full fundamental analysis of X Financial gives it a total score of 5 out of 10, showing a varied but interesting picture. The company's strong points are especially clear in the area of earnings power, where it gets an 8 out of 10. Main features include top-level margins and outstanding returns on capital put into the business. Its price is also a main point, with a very low Price-to-Earnings (P/E) ratio of 1.27, making it look very inexpensive compared to both its field and the wider S&P 500.

The analysis does mention some small issues about financial condition, which gets a middle score of 5, and indicates a shortage of available expert predictions for future growth, making it hard to estimate how long its present speed can last. Still, from a pure price and past earnings power view, the company's basics fit well with a GARP investment thinking.

A Stock for the Long-Term Investor

For an investor following the ideas of Peter Lynch, X Financial offers an interesting case. It is a company working in the clear, if involved, area of personal finance. Its measures show a business that has increased earnings at a maintainable speed, is very good at earning money, and has a workable amount of debt. Most noticeably, it can be bought at a price that seems to ignore its good past results, as shown by its tiny PEG ratio. While the lack of future growth estimates calls for more independent checking, the company's history of growth and earnings power gives a good base for long-term thought.

Investors curious about finding other companies that meet this strict group of rules can look at the Peter Lynch Strategy stock screen for more possible options.

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 information presented should not be used as the sole basis for any investment decision. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.