UFP TECHNOLOGIES INC (NASDAQ:UFPT) Aligns with Peter Lynch’s GARP Investment Philosophy

The investment philosophy created by Peter Lynch focuses on finding companies with good growth potential that are available at fair prices, a method known as GARP, or Growth At a Reasonable Price. Lynch’s system, explained in his book One Up on Wall Street, concentrates on lasting business expansion, sound financial condition, and good value, avoiding speculative investments for businesses with clear operations and steady results. This method aims to create a varied, long-term portfolio by using fundamental research to find stocks that might be missed by the general market.

Company Overview

UFP TECHNOLOGIES INC (NASDAQ:UFPT) works on designing and making custom components, subassemblies, and packaging with specific materials such as foams, films, and plastics. Based in Newburyport, Massachusetts, the company mainly works in the medical field, making single-use devices and parts for uses like minimally invasive surgery, infection prevention, and orthopedic implants. With other activities in the automotive industry, UFP Technologies uses different production methods, like compression molding and thermoforming, to make accurate parts for its various customers.

Alignment with Peter Lynch Criteria

The stock screen following Peter Lynch’s method uses certain filters to find companies that show lasting growth, financial steadiness, and fair value. UFP Technologies fits these standards in several important areas, matching closely with Lynch’s ideas for long-term investment choices.

• Sustainable Earnings Growth: Lynch preferred companies with earnings per share (EPS) growth between 15% and 30% each year, as this shows a sound, lasting increase instead of a temporary surge. UFP Technologies has a five-year EPS growth rate of 23.55%, putting it directly within this ideal range and pointing to a steady and controlled growth path.
• Reasonable Valuation (PEG Ratio): The Price/Earnings to Growth (PEG) ratio is a fundamental part of the Lynch method, as it relates a company’s value to its growth. A PEG ratio at or under 1.0 suggests a stock may be fairly priced. UFP Technologies has a PEG ratio of 0.97, showing that its share price is not too high compared to its past earnings growth.
• Strong Profitability (Return on Equity): Lynch searched for companies that effectively create profits from shareholder equity. A Return on Equity (ROE) above 15% is a main sign of this operational quality. UFP Technologies has an ROE of 17.41%, showing its capacity to provide good returns on the money put into the business.
• Conservative Financial Structure (Debt/Equity): A low amount of debt was important for Lynch, as it lowers financial risk and shows a company can run its operations without too much dependence on loans. With a Debt-to-Equity ratio of 0.39, UFP Technologies keeps a careful balance sheet, well inside the screen’s limit of 0.6 and near Lynch’s own choice for a ratio under 0.25.
• Financial Health (Current Ratio): To make sure a company can pay its short-term bills, Lynch highlighted liquidity. The Current Ratio checks this ability, with a number above 1.0 being satisfactory. UFP Technologies’ Current Ratio of 2.77 shows a strong liquidity situation, giving a good buffer against near-term financial challenges.

Fundamental Analysis Summary

A complete fundamental analysis report gives UFP Technologies a total score of 7 out of 10, placing it well within the Health Care Equipment & Supplies industry. The company’s profile is marked by several clear positives. Its profitability is a notable feature, with high marks for Return on Assets, Return on Equity, and Return on Invested Capital, all placed in the top group of its industry competitors. Also, the company is showing very good growth, with revenue and EPS having notable rises over the last year and five-year span.

While the value is seen as fair based on measures like the PEG ratio and when measured against industry competitors on an Enterprise Value/EBITDA basis, its individual Price-to-Earnings ratio is seen as somewhat high. The company’s financial condition is mostly sound, backed by a good Altman-Z score and acceptable solvency measures, though the report points out some small issues, including a rise in outstanding shares over recent years.

Conclusion

For investors looking for growth at a fair price, UFP Technologies offers an interesting example of a company that fits a careful, fundamental-based method. Its steady earnings growth, high profitability, low debt level, and fair value when growth is considered, all match the ideas Peter Lynch used to get returns that beat the market. While any investment has some risk, and the company’s value needs thought, its good operational performance and financial condition make it a notable option for more study by long-term, GARP-focused investors.

This stock was found using a screen built on the Peter Lynch method. To see other companies that currently fit these standards, you can check the full list of results from the screen.

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 content presented is based on data believed to be reliable but is not guaranteed. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.