According to the Peter Lynch Growth Screen, a Premium All-in-One Screener template, five stocks with high financial strength, good revenue growth and are trading below the Peter Lynch earnings line as of Tuesday are Big Lots Inc. (BIG, Financial), The Cooper Companies Inc. (COO, Financial), Emergent BioSolutions Inc. (EBS, Financial), SPAR Group Inc. (SGRP, Financial) and Worthington Industries Inc. (WOR, Financial).
Lynch, who managed the Fidelity Magellan Fund during the 1980s, wrote in his book "One Up on Wall Street" that one can quickly measure a stock's valuation by comparing the stock's price to a fair value at 15 times earnings. A stock is undervalued if it trades below a price-earnings ratio of 15.
GuruFocus' Peter Lynch Growth Screen also looks for stocks with 10-year revenue growth of at least 6% and a business predictability rank of at least two stars out of five. To further narrow the list of companies to high-quality stocks, one can require a financial strength rank of at least 6.
The Screener listed five companies meeting the above criteria as of Tuesday.
GuruFocus ranks the Columbus-based discount retailer's profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a three-year revenue growth rate that outperforms over 73% of global competitors and an operating margin that tops more than 80% of global defensive retail companies.
Big Lots' financial strength ranks 6 out of 10 on the back of a high Altman Z-score of 4.11 and debt ratios outperforming over 66% of global competitors. Gurus with large holdings in Big Lots include Pioneer Investments (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio)'s GMO.
The Cooper Companies
Shares of The Cooper Companies (COO, Financial) traded around $388.98, approximately 8.98 times its earnings per share. The company's price-earnings ratio is near a 10-year low and outperforms more than 91% of global medical device companies.
GuruFocus ranks the San Ramon, California-based medical company's financial strength 6 out of 10 on the back of a strong Altman Z-score of 5.19 despite debt ratios underperforming over 60% of global competitors.
Shares of Emergent BioSolutions (EBS, Financial) traded around $79.25, approximately 14 times its earnings per share. Despite this, the stock's price-earnings ratio is near a five-year low; further, the stock is significantly undervalued based on Tuesday's price-to-GF Value ratio of 0.66.
GuruFocus ranks the Gaithersburg, Maryland-based drug manufacturer's profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 7 and profit margins and returns outperforming over 88% of global competitors.
GuruFocus ranks the White Plains, New York-based merchandising and marketing company's profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8, a three-star business predictability rank and an operating margin that has increased approximately 13.8% per year on average over the past five years.
GuruFocus ranks the Columbus-based manufacturing company's profitability 7 out of 10 on the back of a high Piotroski F-score of 7 and returns outperforming over 98% of global competitors despite operating margins topping just over half of global industrial companies.
Disclosure: The author has no positions in the stocks mentioned. The mention of stocks in this article do not constitute a recommendation. Investors must do their own diligent research before investing in the stock market.
Different valuation methods may produce different valuation zones: A stock may be undervalued based on the Peter Lynch earnings line yet overvalued based on its price-sales ratio or our exclusive GF Value method.
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