When seeking long-term investments that blend the best of both growth and value, the GARP (Growth at a Reasonable Price) strategy offers a balanced middle ground. This approach, famously championed by legendary fund manager Peter Lynch, focuses on companies with solid, sustainable earnings growth that are not yet priced to perfection by the market. The core idea is to avoid overvalued growth stocks and instead target businesses with strong fundamentals trading at reasonable valuations, a method that helped Lynch achieve an average yearly return of 29.2% for the Magellan Fund between 1977 and 1990. Using a Peter Lynch-inspired stock screener, we identified ANGLOGOLD ASHANTI PLC (NYSE:AU) as a potential candidate for this disciplined strategy.
Recent Performance and Growth Profile
The first filter in a Peter Lynch screen targets companies with consistent but not explosive growth. Lynch specifically looked for earnings per share (EPS) growth between 15% and 30% over five years, as he believed anything faster was unsustainable. ANGLOGOLD ASHANTI meets this requirement with a 5-year EPS growth rate of 17.16%, indicating a steady upward trajectory. The company’s past performance shows strong momentum, with EPS growing by an impressive 156.33% in the last year alone and revenue increasing by 20.75% over the same period. This suggests the company is capturing market share and executing well operationally, without the speculative frenzy that often accompanies faster-growing peers.
Valuation Metrics
For a GARP investor, a company’s growth must be backed by a reasonable price. Lynch’s preferred valuation tool is the PEG ratio (Price/Earnings to Growth), which compares the P/E ratio to the earnings growth rate. The screen requires a PEG ratio of 1 or lower, indicating that the stock is not overpaying for its growth. ANGLOGOLD ASHANTI passes this test with a PEG ratio of 0.74, based on past 5-year growth. For context, this means investors are paying less than one dollar for every dollar of expected growth, a hallmark of undervaluation.
Looking at standard price multiples, the company also scores well:
- Current P/E ratio: 12.75 – This is well below both the industry average of 54.38 and the S&P500 average of 26.41, placing the stock in the cheaper half of its sector.
- Forward P/E ratio: 8.49 – With estimated future earnings growth of 24.44%, this forward valuation suggests significant upside potential if the company meets its targets.
- Price/Free Cash Flow ratio – ANGLOGOLD ASHANTI is cheaper than 94.41% of its industry peers on this metric, reinforcing its value proposition.
Financial Health and Profitability
A core tenet of Lynch’s strategy is that a company must be financially robust, not just growing for the sake of it. The screen checks three key health and profitability metrics, and ANGLOGOLD ASHANTI meets all of them comfortably:
- Return on Equity (ROE): 40.70% – This is exceptionally high, outperforming 98.14% of industry peers. Lynch insisted on an ROE above 15%, and this figure shows the company generates substantial profits from shareholder equity.
- Debt/Equity Ratio: 0.26 – Below the required maximum of 0.6, indicating very conservative use of debt. The company has an Altman-Z score of 6.61, suggesting bankruptcy risk is minimal.
- Current Ratio: 2.71 – Well above the minimum of 1.0, meaning the company has ample short-term assets to cover its liabilities. The quick ratio of 2.11 provides additional comfort.
Profitability indicators are equally strong, with an operating margin of 47.35% and a net profit margin of 31.11%, both ranking in the top quartile of the industry. The return on invested capital (ROIC) is 25.93%, which is significantly above the cost of capital, confirming that management is creating value for shareholders.
Analyst Views and Growth Outlook
While short-term analyst estimates indicate a potential decline in EPS of -4.77% annually, revenue is expected to grow by 11.21% per year, suggesting the company may be investing for the long term. The forward earnings growth estimate of 24.44% is a key driver for the positive valuation picture. Importantly, the company has a history of returning capital to shareholders, with a dividend yield of 3.88% – well above the S&P500 average of 1.82% and the industry average of 1.04%. However, the payout ratio of 71.10% warrants watching, as it sits near the upper limit of sustainability.
Summary of Fundamental Report
Our full fundamental analysis report provides a total rating of 7 out of 10, with strong scores across profitability (8/10) and valuation (8/10), while health (7/10) and growth (6/10) are solid. The company’s combination of a low PEG ratio, high ROE, low debt, and strong profit margins aligns closely with the Peter Lynch framework. You can access the detailed breakdown of these metrics via the fundamental analysis report.
Discover More GARP Candidates
ANGLOGOLD ASHANTI is a single result from a screen designed to find companies with sustainable growth, strong financial health, and reasonable valuations. To explore a broader list of stocks that match these criteria and apply the same Peter Lynch-inspired filters to your own analysis, visit our Peter Lynch Strategy Screener to find additional investment ideas.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research or consult with a qualified financial advisor before making investment decisions.
Read full article here »
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Anglogold Ashanti PLC (NYSE:AU): A GARP Stock with 17% EPS Growth and a PEG of 0.74
When seeking long-term investments that blend the best of both growth and value, the GARP (Growth at a Reasonable Price) strategy offers a balanced middle ground. This approach, famously championed by legendary fund manager Peter Lynch, focuses on companies with solid, sustainable earnings growth that are not yet priced to perfection by the market. The core idea is to avoid overvalued growth stocks and instead target businesses with strong fundamentals trading at reasonable valuations, a method that helped Lynch achieve an average yearly return of 29.2% for the Magellan Fund between 1977 and 1990. Using a Peter Lynch-inspired stock screener, we identified ANGLOGOLD ASHANTI PLC (NYSE:AU) as a potential candidate for this disciplined strategy.
Recent Performance and Growth Profile
The first filter in a Peter Lynch screen targets companies with consistent but not explosive growth. Lynch specifically looked for earnings per share (EPS) growth between 15% and 30% over five years, as he believed anything faster was unsustainable. ANGLOGOLD ASHANTI meets this requirement with a 5-year EPS growth rate of 17.16%, indicating a steady upward trajectory. The company’s past performance shows strong momentum, with EPS growing by an impressive 156.33% in the last year alone and revenue increasing by 20.75% over the same period. This suggests the company is capturing market share and executing well operationally, without the speculative frenzy that often accompanies faster-growing peers.
Valuation Metrics
For a GARP investor, a company’s growth must be backed by a reasonable price. Lynch’s preferred valuation tool is the PEG ratio (Price/Earnings to Growth), which compares the P/E ratio to the earnings growth rate. The screen requires a PEG ratio of 1 or lower, indicating that the stock is not overpaying for its growth. ANGLOGOLD ASHANTI passes this test with a PEG ratio of 0.74, based on past 5-year growth. For context, this means investors are paying less than one dollar for every dollar of expected growth, a hallmark of undervaluation.
Looking at standard price multiples, the company also scores well:
Financial Health and Profitability
A core tenet of Lynch’s strategy is that a company must be financially robust, not just growing for the sake of it. The screen checks three key health and profitability metrics, and ANGLOGOLD ASHANTI meets all of them comfortably:
Profitability indicators are equally strong, with an operating margin of 47.35% and a net profit margin of 31.11%, both ranking in the top quartile of the industry. The return on invested capital (ROIC) is 25.93%, which is significantly above the cost of capital, confirming that management is creating value for shareholders.
Analyst Views and Growth Outlook
While short-term analyst estimates indicate a potential decline in EPS of -4.77% annually, revenue is expected to grow by 11.21% per year, suggesting the company may be investing for the long term. The forward earnings growth estimate of 24.44% is a key driver for the positive valuation picture. Importantly, the company has a history of returning capital to shareholders, with a dividend yield of 3.88% – well above the S&P500 average of 1.82% and the industry average of 1.04%. However, the payout ratio of 71.10% warrants watching, as it sits near the upper limit of sustainability.
Summary of Fundamental Report
Our full fundamental analysis report provides a total rating of 7 out of 10, with strong scores across profitability (8/10) and valuation (8/10), while health (7/10) and growth (6/10) are solid. The company’s combination of a low PEG ratio, high ROE, low debt, and strong profit margins aligns closely with the Peter Lynch framework. You can access the detailed breakdown of these metrics via the fundamental analysis report.
Discover More GARP Candidates
ANGLOGOLD ASHANTI is a single result from a screen designed to find companies with sustainable growth, strong financial health, and reasonable valuations. To explore a broader list of stocks that match these criteria and apply the same Peter Lynch-inspired filters to your own analysis, visit our Peter Lynch Strategy Screener to find additional investment ideas.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research or consult with a qualified financial advisor before making investment decisions.
Read full article here »