Peter Lynch's growth-at-a-reasonable-price strategy is built on a straightforward idea: find companies with steady, sustainable earnings growth, healthy balance sheets, and valuations that have not yet caught up to their fundamentals. His approach favors understandable businesses, low debt, and patience, rather than trying to time the market. When a stock screener built around those principles is applied today, ACI WORLDWIDE INC (NASDAQ:ACIW) is one of the names that passes through the filter.
A Lynch-style profile
ACI Worldwide operates in a comprehensible corner of financial technology: it provides software and payment solutions for banks, merchants, and billers. For Lynch, that is a positive. Investors can understand what the company sells and why customers use it. But the screen is not about narrative alone; it applies specific numerical tests to keep the analysis disciplined.
How the screen's numbers look
The Peter Lynch screen focuses on sustainable growth, reasonable valuation, and financial health. ACI Worldwide comes through on the main criteria:
- EPS growth (5Y): 29.3%, inside the 15% to 30% range Lynch considered sustainable
- PEG ratio (5Y): 0.82, below the 1.0 ceiling
- Debt/Equity: 0.52, under the 0.6 limit
- Current ratio: 1.58, above the 1.0 minimum
- ROE: 15.1%, above the 15% profitability threshold
The combination matters. The five-year EPS growth rate is strong enough to indicate a growing business, but it stays below the 30% ceiling that Lynch used to flag growth likely to be unsustainable. The PEG ratio of 0.82 reinforces that the market is not asking investors to overpay for that growth. Meanwhile, the debt-to-equity ratio passes the screen's upper bound, and the current ratio provides a buffer for short-term obligations. For a long-term hold, those financial health checks reduce the chance that a temporary shock derails the investment thesis.
One nuance is that Lynch personally preferred even less leverage, so the 0.52 debt-to-equity ratio is acceptable but not pristine. That is a point worth weighing before committing capital.
What the fundamental report adds
The fundamental report gives ACI Worldwide an overall score of 6 out of 10. The profitability bucket is the strongest, scoring 8 out of 10. The company has been profitable in each of the past five years, and its return on equity, return on assets, and return on invested capital all rank in the top quartile of the software industry. Operating margin of 19.3% is also a standout. However, gross margin trails most peers, and the stock does not pay a dividend, which is not a Lynch requirement but may matter to income-focused investors.
Financial health earns a 6 out of 10. The Altman-Z score of 3.98 points to low bankruptcy risk, and the debt-to-free-cash-flow ratio of 2.89 is manageable. The main yellow flag is that return on invested capital, at 11.5%, is currently below the cost of capital, a detail long-term investors should monitor. Valuation also scores 5 out of 10: the trailing P/E of 24.0 and forward P/E of 17.6 are not obviously cheap, but the PEG ratio suggests growth compensates for the multiple. Growth gets the same score, with a strong compound EPS growth rate over five years and expected forward EPS growth of 17.2%. For investors who want to see the full breakdown of these ratings, this fundamental analysis report provides the underlying details.
A starting point, not a final answer
Lynch emphasized that a screener is only the first step. The companies that come through still need to be researched and understood. In ACI Worldwide's case, the growth and valuation metrics line up well with the growth-at-a-reasonable-price philosophy, but the balance sheet leverage and the gap between ROIC and WACC deserve attention. The recent decline in EPS from the prior year is another reminder that growth is not always linear. Investors should weigh those issues against the company's long-term growth outlook and industry position.
Bottom line
ACI Worldwide offers a blend of growth, profitability, and reasonable valuation that fits the spirit of the Peter Lynch strategy. It is not a perfect low-debt compounder, and the fundamental report shows a few areas to watch, but the screening process is designed to surface names like this for deeper research. More stocks that match this methodology can be found in the Peter Lynch screen results.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »
View the Zacks #1 Rank List
ACI Worldwide (NASDAQ:ACIW) Fits Peter Lynch's Growth-at-a-Reasonable-Price Screen
Peter Lynch's growth-at-a-reasonable-price strategy is built on a straightforward idea: find companies with steady, sustainable earnings growth, healthy balance sheets, and valuations that have not yet caught up to their fundamentals. His approach favors understandable businesses, low debt, and patience, rather than trying to time the market. When a stock screener built around those principles is applied today, ACI WORLDWIDE INC (NASDAQ:ACIW) is one of the names that passes through the filter.
A Lynch-style profile
ACI Worldwide operates in a comprehensible corner of financial technology: it provides software and payment solutions for banks, merchants, and billers. For Lynch, that is a positive. Investors can understand what the company sells and why customers use it. But the screen is not about narrative alone; it applies specific numerical tests to keep the analysis disciplined.
How the screen's numbers look
The Peter Lynch screen focuses on sustainable growth, reasonable valuation, and financial health. ACI Worldwide comes through on the main criteria:
The combination matters. The five-year EPS growth rate is strong enough to indicate a growing business, but it stays below the 30% ceiling that Lynch used to flag growth likely to be unsustainable. The PEG ratio of 0.82 reinforces that the market is not asking investors to overpay for that growth. Meanwhile, the debt-to-equity ratio passes the screen's upper bound, and the current ratio provides a buffer for short-term obligations. For a long-term hold, those financial health checks reduce the chance that a temporary shock derails the investment thesis.
One nuance is that Lynch personally preferred even less leverage, so the 0.52 debt-to-equity ratio is acceptable but not pristine. That is a point worth weighing before committing capital.
What the fundamental report adds
The fundamental report gives ACI Worldwide an overall score of 6 out of 10. The profitability bucket is the strongest, scoring 8 out of 10. The company has been profitable in each of the past five years, and its return on equity, return on assets, and return on invested capital all rank in the top quartile of the software industry. Operating margin of 19.3% is also a standout. However, gross margin trails most peers, and the stock does not pay a dividend, which is not a Lynch requirement but may matter to income-focused investors.
Financial health earns a 6 out of 10. The Altman-Z score of 3.98 points to low bankruptcy risk, and the debt-to-free-cash-flow ratio of 2.89 is manageable. The main yellow flag is that return on invested capital, at 11.5%, is currently below the cost of capital, a detail long-term investors should monitor. Valuation also scores 5 out of 10: the trailing P/E of 24.0 and forward P/E of 17.6 are not obviously cheap, but the PEG ratio suggests growth compensates for the multiple. Growth gets the same score, with a strong compound EPS growth rate over five years and expected forward EPS growth of 17.2%. For investors who want to see the full breakdown of these ratings, this fundamental analysis report provides the underlying details.
A starting point, not a final answer
Lynch emphasized that a screener is only the first step. The companies that come through still need to be researched and understood. In ACI Worldwide's case, the growth and valuation metrics line up well with the growth-at-a-reasonable-price philosophy, but the balance sheet leverage and the gap between ROIC and WACC deserve attention. The recent decline in EPS from the prior year is another reminder that growth is not always linear. Investors should weigh those issues against the company's long-term growth outlook and industry position.
Bottom line
ACI Worldwide offers a blend of growth, profitability, and reasonable valuation that fits the spirit of the Peter Lynch strategy. It is not a perfect low-debt compounder, and the fundamental report shows a few areas to watch, but the screening process is designed to surface names like this for deeper research. More stocks that match this methodology can be found in the Peter Lynch screen results.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »