Peter Lynch made his name at the helm of Fidelity’s Magellan Fund, and investment research firm Validea has distilled his investment philosophy into a methodical framework. The approach centers on finding companies that demonstrate growth characteristics while remaining reasonably priced – a strategy known as GARP (Growth At a Reasonable Price).
The methodology hinges on the PEG ratio, which measures a stock’s P/E ratio against its earnings growth rate. A PEG ratio under 1.0 may indicate an undervalued stock, considering its growth trajectory.
Steady earnings growth forms a critical component, with the strategy particularly drawn to businesses showing consistent yearly growth of 20-30%. However, it approaches extraordinarily high growth rates with skepticism, recognizing they may be unsustainable.
The framework segments companies into three distinct groups – slow growers, stalwarts, and fast growers – with each category requiring its own analytical lens.
A company’s financial stability plays a vital role, with the strategy emphasizing manageable debt levels as measured by the debt-to-equity ratio. This focus on reasonable leverage helps identify companies better positioned to weather economic downturns.
Discover how Validea’s models can help you identify high-quality, long-term investments, even in changing market conditions. Visit Validea.com to access in-depth stock analysis and tools designed to emulate proven investment principles. Take a Free Trial Today!
While the PEG ratio serves as the cornerstone metric, traditional P/E ratios remain relevant. Companies trading at P/E multiples below their market or sector averages may present compelling opportunities when viewed alongside the strategy’s other key criteria.
Here are the top ten highest scoring stocks for January 2025 for Validea’s P/E/Growth Investor strategy based on Peter Lynch.
| Ticker | Company Name | Price | Market Cap ($mil) | P/E Ratio | Price/Sales | Relative Strength | Price/Book | Price/Cash Flow | Dividend Yield | Long-Term EPS Growth |
|---|---|---|---|---|---|---|---|---|---|---|
| AX | Axos Financial Inc. | $61.43 | $3,495 | 8.0 | 3.0 | 84 | 1.5 | 7.3 | — | 25.7% |
| BBVA | Banco Bilbao Vizcaya Argentaria SA (ADR) | $9.93 | $56,441 | 6.0 | 1.2 | 77 | 1.0 | 4.7 | 5.9% | 26.1% |
| EWBC | East West Bancorp Inc. | $78.28 | $10,850 | 10.0 | 4.2 | 84 | 1.5 | 8.6 | 2.8% | 18.0% |
| HCI | HCI Group Inc. | $94.65 | $991 | 7.6 | 1.4 | 92 | 2.2 | 5.6 | 1.7% | 33.7% |
| HG | Hamilton Insurance Group Ltd. | $18.38 | $1,946 | 4.4 | 1.0 | 88 | 0.8 | 2.9 | — | 16.4% |
| HRTG | Heritage Insurance Holdings Inc. | $15.18 | $466 | 7.8 | 0.6 | 98 | 1.8 | 6.9 | — | 33.6% |
| INMD | InMode Ltd. | $16.90 | $1,289 | 9.8 | 3.1 | 16 | 1.9 | 8.6 | — | 34.5% |
| OFG | OFG Bancorp | $42.99 | $2,002 | 10.6 | 2.8 | 49 | 1.6 | 9.1 | 2.3% | 36.6% |
| OZK | Bank OZK | $39.66 | $4,500 | 6.6 | 2.8 | 49 | 0.9 | 6.1 | 4.0% | 22.2% |
| PERI | Perion Network Ltd. | $8.35 | $404 | 5.4 | 0.6 | 43 | 0.6 | 4.3 | — |
Further Research
